Price setting, price dispersion, and the value of money - or - The law of two prices
We study models that combine search, monetary exchange, price posting by sellers, and buyers with preferences that differ across random meetings - say, because sellers in different meetings produce different varieties of the same good. We show how these features interact to influence the price level (i.e., the value of money) and price dispersion. First, price-posting equilibria exist with valued fiat currency, which is not true in the standard model. Second, although both are possible, price dispersion is more common than a single price. Third, perhaps surprisingly, we prove generically there cannot be more than two prices in equilibrium.
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""A Rudimentary Model of Search with Divisible Money and Prices'',"
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95-17, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
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"Money and Price Dispersion,"
98-03, University of Iowa, Department of Economics.
- 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, 08.
- Narayana R. Kocherlakota, 1996.
"Money is memory,"
218, Federal Reserve Bank of Minneapolis.
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