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Money and Prices: A Model of Search and Bargaining

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  • Shi Shougong

Abstract

This paper makes commodities divisible and incorporates bargaining into the search-theoretic model of money to determine the purchasing power of money (or price). It is shown that two monetary equilibria always coexist where flat money is universally accepted. The two equilibria differ in price, output, welfare and the velocity of money. Sunspot monetary equilibria exist in which money is universally accepted in all states of the economy. Multiplicity has novel implications on the effectiveness of currency substitution and exchange market intervention.
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Suggested Citation

  • Shi Shougong, 1995. "Money and Prices: A Model of Search and Bargaining," Journal of Economic Theory, Elsevier, vol. 67(2), pages 467-496, December.
  • Handle: RePEc:eee:jetheo:v:67:y:1995:i:2:p:467-496
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    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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