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Endogenous buyer-seller choice and divisible money in search equilibrium

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  • Faig, Miquel

Abstract

In the Lagos-Wright model [R. Lagos, R. Wright, A unified framework for monetary theory and policy analysis, J. Polit. Economy 113 (2005) 463-484], the quasi-linear preferences assumption is not necessary to generate simple distributions of money holdings if individuals choose endogenously to go to the search market as buyers or as sellers. The non-convex buyer-seller choice provides an incentive for gambling in lotteries, and, as a result, the value function has a linear interval. As long as this interval is the relevant one for evaluating their future utilities, individuals behave as if their preferences were quasi-linear. In the stationary equilibrium, individuals remain inside this linear interval if the money supply does not decline.

Suggested Citation

  • Faig, Miquel, 2008. "Endogenous buyer-seller choice and divisible money in search equilibrium," Journal of Economic Theory, Elsevier, vol. 141(1), pages 184-199, July.
  • Handle: RePEc:eee:jetheo:v:141:y:2008:i:1:p:184-199
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    References listed on IDEAS

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    1. Shouyong Shi, 1997. "A Divisible Search Model of Fiat Money," Econometrica, Econometric Society, vol. 65(1), pages 75-102, January.
    2. Wallace, Neil, 2001. "Whither Monetary Economics?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 847-869, November.
    3. Miquel Faig & Belén Jerez, 2007. "Precautionary Balances and the Velocity of Circulation of Money," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(4), pages 843-873, June.
    4. Kocherlakota, Narayana R., 1998. "Money Is Memory," Journal of Economic Theory, Elsevier, vol. 81(2), pages 232-251, August.
    5. Ricardo Lagos & Randall Wright, 2005. "A Unified Framework for Monetary Theory and Policy Analysis," Journal of Political Economy, University of Chicago Press, vol. 113(3), pages 463-484, June.
    6. Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 3-16, January.
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    Cited by:

    1. Menzio, Guido & Shi, Shouyong & Sun, Hongfei, 2013. "A monetary theory with non-degenerate distributions," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2266-2312.
    2. Williamson, Stephen & Wright, Randall, 2010. "New Monetarist Economics: Models," Handbook of Monetary Economics,in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 2, pages 25-96 Elsevier.

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