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Two Monetary Models with Alternating Markets

  • Gabriele Camera

    ()

    (Economic Science Institute, Chapman University)

  • YiLi Chien

    ()

    (Research Division, Federal Reserve Bank of St. Louis)

We examine two monetary models with periodic interactions in centralized and decentralized markets: the cash-in-advance model and the model in Lagos and Wright (2005). Given conformity of preferences, technologies and shocks, both models reduce to a single di?erence equation. In stationary equilibrium, such equations coincide when the price distortion present in one model, due to Nash bargaining, is replicated in the other using a tax on cash revenues. In that case, the quantitative implications for the welfare cost of in?ation in each model are also comparable. Di?erences in the model’s performance reduce to di?erences in the pricing mechanism assumed to govern those transactions that must be settled with the exchange of cash.

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Paper provided by Chapman University, Economic Science Institute in its series Working Papers with number 13-25.

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Length: 26 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:chu:wpaper:13-25
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  1. Ping He & Lixin Huang & Randall Wright, 2005. "Money And Banking In Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(2), pages 637-670, 05.
  2. Jordi Galí & Mark Gertler, 2007. "Macroeconomic Modeling for Monetary Policy Evaluation," NBER Working Papers 13542, National Bureau of Economic Research, Inc.
  3. Aleksander Berentsen & Gabriele Camera & Christopher Waller, . "Money, Credit and Banking," IEW - Working Papers 219, Institute for Empirical Research in Economics - University of Zurich.
  4. Robert E. Lucas Jr. & Nancy L. Stokey, 1982. "Optimal Fiscal and Monetary Policy in an Economy Without Capital," Discussion Papers 532, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Chiu, Jonathan & Molico, Miguel, 2010. "Liquidity, redistribution, and the welfare cost of inflation," Journal of Monetary Economics, Elsevier, vol. 57(4), pages 428-438, May.
  6. Boel, Paola & Camera, Gabriele, 2009. "Financial sophistication and the distribution of the welfare cost of inflation," Journal of Monetary Economics, Elsevier, vol. 56(7), pages 968-978, October.
  7. Lagos, Ricardo & Wright, Randall, 2003. "Dynamics, cycles, and sunspot equilibria in 'genuinely dynamic, fundamentally disaggregative' models of money," Journal of Economic Theory, Elsevier, vol. 109(2), pages 156-171, April.
  8. Lucas, Robert Jr., 1986. "Principles of fiscal and monetary policy," Journal of Monetary Economics, Elsevier, vol. 17(1), pages 117-134, January.
  9. Feenstra, Robert C., 1986. "Functional equivalence between liquidity costs and the utility of money," Journal of Monetary Economics, Elsevier, vol. 17(2), pages 271-291, March.
  10. Lucas, Robert Jr., 1982. "Interest rates and currency prices in a two-country world," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 335-359.
  11. Boel, Paola & Camera, Gabriele, 2011. "The Welfare Cost Of Inflation In Oecd Countries," Macroeconomic Dynamics, Cambridge University Press, vol. 15(S2), pages 217-251, September.
  12. Lucas, Robert E, Jr, 1980. "Equilibrium in a Pure Currency Economy," Economic Inquiry, Western Economic Association International, vol. 18(2), pages 203-20, April.
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