The distribution of money and prices in an equilibrium with lotteries
We construct a tractable ‘fundamental’ model of money with equilibrium heterogeneity in money balances and prices. We do so by considering randomized monetary trades in a standard search-theoretic model of money where agents can hold multiple units of indivisible ‘tokens’ and can offer lotteries on monetary transfers. By studying a simple trading pattern, we can analytically characterize the monetary distribution. Interestingly, such distributions match those observed in numerically simulated economies with fully divisible money and price heterogeneity. Copyright Springer-Verlag Berlin/Heidelberg 2004
Volume (Year): 24 (2004)
Issue (Month): 4 (November)
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