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A monetary theory with non-degenerate distributions

  • Menzio, Guido
  • Shi, Shouyong
  • Sun, Hongfei

We construct and analyze a tractable search model of money with a non-degenerate distribution of money holdings. Analytical tractability comes from modeling decentralized exchange as directed search, which makes the monetary steady state block recursive. By adapting lattice-theoretic techniques, we characterize individuals╩╝ policy and value functions, and show that these functions satisfy the standard conditions of optimization. We prove that a unique monetary steady state exists and provide conditions under which the steady-state distribution of buyers over money balances is non-degenerate. Moreover, we analyze the properties of this distribution.

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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 148 (2013)
Issue (Month): 6 ()
Pages: 2266-2312

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Handle: RePEc:eee:jetheo:v:148:y:2013:i:6:p:2266-2312
DOI: 10.1016/j.jet.2013.07.020
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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