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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- Shouyong Shi, 1995.
"Money and Prices: A Model of Search and Bargaining,"
916, Queen's University, Department of Economics.
- Shi Shougong, 1995. "Money and Prices: A Model of Search and Bargaining," Journal of Economic Theory, Elsevier, vol. 67(2), pages 467-496, December.
- 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.
- Wallace, Neil, 2001. "Whither Monetary Economics?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 847-69, November.
- Zhou, Ruilin, 1999.
"Individual and Aggregate Real Balances in a Random-Matching Model,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 1009-38, November.
- Ruilin Zhou, 1996. "Individual and Aggregate Real Balances in a Random Matching Model," GE, Growth, Math methods 9612001, EconWPA, revised 23 Dec 1996.
- Ruilin Zhou, 1996. "Individual and aggregate real balances in a random matching model," Staff Report 222, Federal Reserve Bank of Minneapolis.
- Albrecht, James & Axell, Bo, 1983.
"An Equilibrium Model of Search Unemployment,"
83-10, C.V. Starr Center for Applied Economics, New York University.
- Nobuhiro Kiyotaki & Randall Wright, 1989.
"A contribution to the pure theory of money,"
123, Federal Reserve Bank of Minneapolis.
- Camera, G. & Corbae, D., 1998.
"Money and Price Dispersion,"
98-03, University of Iowa, Department of Economics.
- Miquel Faig, 2001.
"A Search Theory of Money and Commerce with Neoclassical Production,"
faig-01-01, University of Toronto, Department of Economics.
- Miquel Faig, 2001. "A search theory of money and commerce with Neoclassical production," Economics Working Papers 567, Department of Economics and Business, Universitat Pompeu Fabra.
- Narayana R. Kocherlakota, 1996.
"Money is memory,"
218, Federal Reserve Bank of Minneapolis.
- Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
- Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August.
- Camera, Gabriele & Winkler, Johannes, 2003. "International monetary trade and the law of one price," Journal of Monetary Economics, Elsevier, vol. 50(7), pages 1531-1553, October.
- Edward J. Green & Ruilin Zhou, .
""A Rudimentary Model of Search with Divisible Money and Prices'',"
CARESS Working Papres
95-17, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
- Edward J. Green & Ruilin Zhou, . "A Rudimentary Model of Search with Divisible Money and Prices," Penn CARESS Working Papers 2772f94306e08ef7292945588, Penn Economics Department.
- Jafarey, Saqib & Masters, Adrian, 2003. " Output, Prices, and the Velocity of Money in Search Equilibrium," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(6), pages 871-88, December.
- Peter Diamond, 1985.
"Consumer Differences and Prices in a Search Model,"
404, Massachusetts Institute of Technology (MIT), Department of Economics.
- Trejos, Alberto & Wright, Randall, 1995. "Search, Bargaining, Money, and Prices," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 118-41, February.
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