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On Market Activity and the Value of Money

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  • Camera, Gabriele
  • Vesely, Filip

Abstract

In a random-matching monetary economy, efficient and inefficient sellers choose between home or market production. Since inefficient sellers bargain up their prices, two equilibria may exist-with high or low market participation-depending on extent of heterogeneity and frictions. In equilibrium, the presence of inefficient sellers in the market has two opposing effects. It raises trading frequencies, so it lowers consumption risk, but it lowers the value of money, raising prices. This may reduce trading efficiency. Equilibria with full and limited participation can coexist; when average efficiency is high and agents are patient, limited participation is socially preferable.

Suggested Citation

  • Camera, Gabriele & Vesely, Filip, 2006. "On Market Activity and the Value of Money," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(2), pages 495-509, March.
    • Handle: RePEc:mcb:jmoncb:v:38:y:2006:i:2:p:495-509
    DOI: 10.1353/mcb.2006.0027
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    Cited by:

    1. Edgar A. Ghossoub, 2015. "Endogenous Financial Structure and Monetary Policy," Working Papers 0153eco, College of Business, University of Texas at San Antonio.
    2. Sébastien Lotz & Andrei Shevchenko & Christopher Waller, 2007. "Heterogeneity and Lotteries in Monetary Search Models," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2‐3), pages 703-712, March.
    3. Edgar A. Ghossoub, 2015. "Endogenous Financial Structure and Monetary Policy," Working Papers 0162eco, College of Business, University of Texas at San Antonio.

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