Money and Price Dispersion
We relax restrictions on the storage technology in a prototypical monetary search model to study price dispersion. In this case, buyers and sellers enter matches with potentially different willingness to trade. Across the distribution of possible bilateral matches, prices generally will differ even though agents have identical preferences and technologies. We provide existence conditions for a particularly simple equilibrium pattern of exchange. We prove that in the limiting case where search frictions are eliminated, equilibrium prices are uniform. We also show that a higher initial money stock can raise the average price level and increase price dispersion. Copyright 1999 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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Volume (Year): 40 (1999)
Issue (Month): 4 (November)
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