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Trejos-Wright with a 2-unit bound: existence and stability of monetary steady states

Author

Listed:
  • Pidong Huang

    (Korea University)

  • Yoske Igarashi

    (Department of Economics, University of Exeter)

Abstract

This paper investigates a Trejos-Wright random matching model of money with a consumer take-it-or-leave-it offer and with individual money holdings in the set {0, 1, 2}. It is shown that three kinds of monetary steady state exist generically: (1) pure-strategy full-support steady states, (2) mixed-strategy full-support steady states, and (3) non-full-support steady states. A full-support steady state exists if and only if a non-full-support steady state exists. Stability of these steady states is also studied. Both pure-strategy and mixedstrategy full-support steady states are locally stable. However, non-full-support steady states are unstable.

Suggested Citation

  • Pidong Huang & Yoske Igarashi, 2013. "Trejos-Wright with a 2-unit bound: existence and stability of monetary steady states," Discussion Papers 1311, Exeter University, Department of Economics.
  • Handle: RePEc:exe:wpaper:1311
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    File URL: http://people.exeter.ac.uk/cc371/RePEc/dpapers/DP1311.pdf
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    References listed on IDEAS

    as
    1. Alexei Deviatov, 2006. "Money Creation in a Random Matching Model," Working Papers w0081, Center for Economic and Financial Research (CEFIR).
    2. Miguel Molico, 2006. "The Distribution Of Money And Prices In Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(3), pages 701-722, August.
    3. Zhu, Tao, 2005. "Existence of a monetary steady state in a matching model: divisible money," Journal of Economic Theory, Elsevier, vol. 123(2), pages 135-160, August.
    4. Huang, Pidong & Igarashi, Yoske, 2014. "The instability of some non-full-support steady states in a random matching model of money," Journal of Mathematical Economics, Elsevier, vol. 55(C), pages 177-185.
    5. Edward J. Green & Ruilin Zhou, 2002. "Dynamic Monetary Equilibrium in a Random Matching Economy," Econometrica, Econometric Society, vol. 70(3), pages 929-969, May.
    6. Wallace, Neil & Zhu, Tao, 2004. "A commodity-money refinement in matching models," Journal of Economic Theory, Elsevier, vol. 117(2), pages 246-258, August.
    7. Neil Wallace, 2014. "Optimal money creation in "pure currency" economies: a conjecture," The Quarterly Journal of Economics, Oxford University Press, vol. 129(1), pages 259-274.
    8. Pidong Huang & Yoske Igarashi, 2013. "Why Ten $1’s Are Not Treated as a $10," Discussion Papers 1310, Exeter University, Department of Economics.
    9. Shi Shougong, 1995. "Money and Prices: A Model of Search and Bargaining," Journal of Economic Theory, Elsevier, vol. 67(2), pages 467-496, December.
    10. Trejos, Alberto & Wright, Randall, 1995. "Search, Bargaining, Money, and Prices," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 118-141, February.
    11. Deviatov Alexei, 2006. "Money Creation in a Random Matching Model," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(3), pages 1-20, December.
    12. Hector Lomeli & Ted Temzelides, 2002. "Discrete time dynamics in a random matching monetary model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 20(2), pages 259-269.
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    Cited by:

    1. Pidong Huang & Yoske Igarashi, 2013. "Why Ten $1’s Are Not Treated as a $10," Discussion Papers 1310, Exeter University, Department of Economics.
    2. Pidong Huang, 2015. "Robustness of Stability to Cost of Carrying Money in a Matching Model of Money," Annals of Economics and Finance, Society for AEF, vol. 16(1), pages 95-114, May.
    3. Huang, Pidong, 2013. "Robustness of Stability to cost of carrying money in a Matching Model of Money," MPRA Paper 46625, University Library of Munich, Germany.

    More about this item

    Keywords

    random matching model; monetary steady state; local stability; determinacy; instability; Zhu (2003).;

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

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