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A Divisible Search Model of Fiat Money

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  • Shouyong Shi

Abstract

This paper extends the Kiyotaki-Wright model of fiat money to allow for divisible money and goods. By severing the artificial link in the Kiyotaki-Wright model between the money supply and the number of money holders, the author shows that money is neutral but not superneutral. Money growth changes the composition of agents in the market and can increase agents' probability of having a successful match. This trading opportunity effect of money growth can dominate its conventional negative effect on real money balances and so can imply a positive optimal money growth rate.

Suggested Citation

  • Shouyong Shi, 1997. "A Divisible Search Model of Fiat Money," Econometrica, Econometric Society, vol. 65(1), pages 75-102, January.
    • Handle: RePEc:ecm:emetrp:v:65:y:1997:i:1:p:75-102
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    1. Quantitative Macroeconomics and Real Business Cycles (QM&RBC)

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