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Choice of market in the monetary economy

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  • Ryoji Hiraguchi
  • Keiichiro Kobayashi

Abstract

We investigate a monetary model with two kinds of decentralized markets and where each agent stochastically chooses the market in which to participate. In one market, the pricing mechanism is competitive, whereas in the other, the terms of trade are determined by Nash bargaining. We show the sub-optimality of the Friedman rule, which is already demonstrated by existing models, where the setting of search externality in the competitive market is not completely satisfactory. We show this result in the more plausible setting when the competitive market does not have a search externality.

Suggested Citation

  • Ryoji Hiraguchi & Keiichiro Kobayashi, 2017. "Choice of market in the monetary economy," CIGS Working Paper Series 17-013E, The Canon Institute for Global Studies.
    • Handle: RePEc:cnn:wpaper:17-013e
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    References listed on IDEAS

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    1. Guillaume Rocheteau & Randall Wright, 2005. "Money in Search Equilibrium, in Competitive Equilibrium, and in Competitive Search Equilibrium," Econometrica, Econometric Society, vol. 73(1), pages 175-202, January.
    2. Ayres, Ian & Siegelman, Peter, 1995. "Race and Gender Discrimination in Bargaining for a New Car," American Economic Review, American Economic Association, vol. 85(3), pages 304-321, June.
    3. Hiraguchi, Ryoji & Kobayashi, Keiichiro, 2014. "On the optimality of the Friedman rule in a New Monetarist model," Economics Letters, Elsevier, vol. 125(1), pages 57-60.
    4. Nosal, Ed & Rocheteau, Guillaume, 2011. "Money, Payments, and Liquidity," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262016281, April.
    5. Moti Jaleta & Cornelis Gardebroek, 2007. "Farm‐gate tomato price negotiations under asymmetric information," Agricultural Economics, International Association of Agricultural Economists, vol. 36(2), pages 245-251, March.
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