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A Matching Model with Bounded Holdings of Indivisible Money

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  • Taber, Alexander
  • Wallace, Neil

Abstract

Recent versions of pairwise random matching models of money with divisible and perishable goods are amended to allow individuals to hold more than one unit of an indivisible asset. The asset resembles a fiat asset, except that nominal holdings of it yield a small amount of utility. There is a general upper bound on the number of units of the asset that individuals can hold. A steady state with trade is shown to exist. The model is applied to study numerically the effect on welfare of the degree to which the asset is divisible. Copyright 1999 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Taber, Alexander & Wallace, Neil, 1999. "A Matching Model with Bounded Holdings of Indivisible Money," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 961-984, November.
  • Handle: RePEc:ier:iecrev:v:40:y:1999:i:4:p:961-84
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    Citations

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    Cited by:

    1. Zhu, Tao, 2002. "Existence of Monetary Steady States in a Matching Model: Indivisible Money," Working Papers 5-02-1, Pennsylvania State University, Department of Economics.
    2. Berentsen, Aleksander & Rocheteau, Guillaume, 2002. "On the efficiency of monetary exchange: how divisibility of money matters," Journal of Monetary Economics, Elsevier, vol. 49(8), pages 1621-1649, November.
    3. Rupert, Peter & Schindler, Martin & Wright, Randall, 2001. "Generalized search-theoretic models of monetary exchange," Journal of Monetary Economics, Elsevier, vol. 48(3), pages 605-622, December.
    4. Zhu, Tao, 2005. "Existence of a monetary steady state in a matching model: divisible money," Journal of Economic Theory, Elsevier, vol. 123(2), pages 135-160, August.
    5. Ahiabu, Stephen, 2006. "Inflation and the underground economy," MPRA Paper 763, University Library of Munich, Germany, revised Oct 2006.
    6. Hernandez-Chanto, Allan, 2016. "The Extrinsic Value of Low-Denomination Money Holdings," MPRA Paper 72348, University Library of Munich, Germany, revised 15 Jan 2016.
    7. Manjong Lee & Neil Wallace, 2006. "Optimal divisibility when money is costly to produce," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(3), pages 541-556, July.
    8. Camera, Gabriele, 2001. "Dirty money," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 377-415, April.
    9. Kim, Young Sik & Lee, Manjong, 2010. "A model of debit card as a means of payment," Journal of Economic Dynamics and Control, Elsevier, vol. 34(8), pages 1359-1368, August.
    10. Tsunao Okumura, 2006. "Wealth As A Signal In The Search Model Of Money ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(1), pages 87-106, February.
    11. 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.
    12. Aleksander Berentsen, 2002. "On the Distribution of Money Holdings in a Random-Matching Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(3), pages 945-954, August.
    13. Wallace, Neil & Zhu, Tao, 2007. "Float on a note," Journal of Monetary Economics, Elsevier, vol. 54(2), pages 229-246, March.
    14. Miquel Faig, 2001. "A Search Theory of Money and Commerce with Neoclassical Production," Working Papers faig-01-01, University of Toronto, Department of Economics.
    15. Tao Zhu & Neil Wallace, 2004. "Float on a Note," 2004 Meeting Papers 342, Society for Economic Dynamics.
    16. Aleksander Berentsen & Guillaume Rocheteau, 2002. "Money in Bilateral Trade," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 138(IV), pages 489-506, December.
    17. Ricardo de O. Cavalcanti & Paulo K. Monteiro, 2007. "On the Optimum Distribution of Money," 2007 Meeting Papers 771, Society for Economic Dynamics.

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