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Monetary Equilibrium from an Initial State: The Case Without Discounting

Author

Listed:
  • Edward J. Green

    (Federal Reserve Bank of Minneapolis)

  • Ruilin Zhou

    (University of Pennsylvania)

Abstract

This paper studies the existence of single-price price equilibrium from a given initial distribution of money holdings in a search-theoretic model of money where agents have no time preference. The model is similar to the authors' recent models of search economies with no constraints on money inventories, except that here money is modeled as indivisible and traders are assumed to have overtaking-criterion preferences rather than discounting. The equilibrium concept is dynamic equilibrium from an initial distribution of money holdings rather than steady-state equilibrium (which possibly might not be reachable from an initial state) which was studied earlier. In this environment, under some mild conditions on the initial distribution, single-price equilibrium always exists. More precisely, there is an equilibrium path, along which agents trade at the same price, and the money-holdings distribution converges asymptotically to a unique geometric distribution.

Suggested Citation

  • Edward J. Green & Ruilin Zhou, 1999. "Monetary Equilibrium from an Initial State: The Case Without Discounting," Macroeconomics 9902010, EconWPA.
  • Handle: RePEc:wpa:wuwpma:9902010
    Note: Type of Document - LaTeX; prepared on IBM PC; pages: 19
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    References listed on IDEAS

    as
    1. Gilboa, Itzhak & Matsui, Akihiko, 1992. "A model of random matching," Journal of Mathematical Economics, Elsevier, vol. 21(2), pages 185-197.
    2. Green, Edward J. & Zhou, Ruilin, 1998. "A Rudimentary Random-Matching Model with Divisible Money and Prices," Journal of Economic Theory, Elsevier, vol. 81(2), pages 252-271, August.
    3. 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 1009-1038, November.
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    Citations

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    Cited by:

    1. Aleksander Berentsen, 2002. "On the Distribution of Money Holdings 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. 43(3), pages 945-954, August.

    More about this item

    Keywords

    money; random matching; Kiyotaki-Wright; dynamics; Liapunov; overtaking;

    JEL classification:

    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

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