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Money Holdings, Inflation, and Welfare in a Competitive Market

This paper examines an environment where money is essential and agents exchange in perfectly-competitive, Walrasian markets. Agents consume and produce a homogeneous good, but hold money to purchase consumption in the event of a relatively low productivity shock. A Walrasian market delivers a non-degenerate distribution of money holdings across agents and avoids some of the computational difficulties associated with the market and pricing assumptions of bilateral matching and bargaining common to search-theoretic environments. The model is calibrated to long-run US velocity, and the welfare costs of inflation are assessed for variable buyer-seller ratios and persistent states of buying and selling.

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File URL: http://repec.library.villanova.edu/workingpapers/VSBEcon2.pdf
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Paper provided by Villanova School of Business Department of Economics and Statistics in its series Villanova School of Business Department of Economics and Statistics Working Paper Series with number 2.

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Date of creation: Mar 2009
Handle: RePEc:vil:papers:2
Contact details of provider: Web page: http://www.villanova.edu/business/facultyareas/economics/

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  17. Robert E. Lucas, Jr., 2000. "Inflation and Welfare," Econometrica, Econometric Society, vol. 68(2), pages 247-274, March.
  18. Aruoba, S. Boragan & Waller, Christopher J. & Wright, Randall, 2011. "Money and capital," Journal of Monetary Economics, Elsevier, vol. 58(2), pages 98-116, March.
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