Monetary Equilibrium from an Initial State: The Case Without Discounting
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.
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- 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.
- Itzhak Gilboa & Akihiko Matsui, 1990.
"A Model of Random Matching,"
887, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- 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.
- Edward J. Green & Ruilin Zhou, 1996. "A Rudimentary Random-Matching Model with Divisible Money and Prices," GE, Growth, Math methods 9606001, EconWPA, revised 25 Jul 1996.
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