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Existence of a continuum of equilibria in a monetary random-matching model

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  • Hideko Ishihara

    (Senshu University)

Abstract

In this paper, we study a monetary random-matching model where both goods and money are perfectly divisible, production is costly, and there is no exogenous upper bound on agents' money holdings, information on which is private to the agent. We show that there is a continuum of stationary equilibria where agents have either no money or a set amount, and buyers spend all their money. As in the previous studies, the equilibrium value function is step-like, which emerges as a self-fulfilling prophecy. The endogenous upper bound on agents' money holdings is the result of private information on agents' money holdings. Buyers post an offer that is accepted only by sellers without money, who set a higher value on money. (Copyright: Elsevier)

Suggested Citation

  • Hideko Ishihara, 2010. "Existence of a continuum of equilibria in a monetary random-matching model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(4), pages 886-898, October.
  • Handle: RePEc:red:issued:08-69
    DOI: 10.1016/j.red.2010.04.001
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    Keywords

    Money; Random-matching model; Indeterminacy;

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

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