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The Distribution of Money and Prices in an Equilibrium with Lotteries

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  • Aleksander Berentsen
  • Gabriele Camera
  • Christopher Waller

Abstract

We construct a tractable model of divisible money and equilibrium heterogeneity in money balances and prices. We do so by considering randomized monetary trades in a standard search-theoretic model of money where agents can hold multiple units of indivisible 'tokens'. By studying a simple trading pattern, we can generate monetary distributions that match those observed in numerically simulated economies with fully divisible money and price heterogeneity.

Suggested Citation

  • Aleksander Berentsen & Gabriele Camera & Christopher Waller, "undated". "The Distribution of Money and Prices in an Equilibrium with Lotteries," IEW - Working Papers 174, Institute for Empirical Research in Economics - University of Zurich.
  • Handle: RePEc:zur:iewwpx:174
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    References listed on IDEAS

    as
    1. Shi Shougong, 1995. "Money and Prices: A Model of Search and Bargaining," Journal of Economic Theory, Elsevier, vol. 67(2), pages 467-496, December.
    2. Trejos, Alberto & Wright, Randall, 1995. "Search, Bargaining, Money, and Prices," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 118-141, February.
    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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    Cited by:

    1. Andre C. Silva, 2011. "Individual and aggregate money demands," FEUNL Working Paper Series wp557, Universidade Nova de Lisboa, Faculdade de Economia.
    2. Menzio, Guido & Shi, Shouyong & Sun, Hongfei, 2013. "A monetary theory with non-degenerate distributions," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2266-2312.
    3. Martin, Antoine & Monnet, Cyril, 2011. "Monetary Policy Implementation Frameworks: A Comparative Analysis," Macroeconomic Dynamics, Cambridge University Press, vol. 15(S1), pages 145-189, April.
    4. Aleksander Berentsen & Gabriele Camera & C hristopher W aller, 2005. "The Distribution Of Money Balances And The Nonneutrality Of Money," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(2), pages 465-487, May.
    5. Shouyong Shi, 2006. "Viewpoint: A microfoundation of monetary economics," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 39(3), pages 643-688, August.
    6. Young Sik Kim & Manjong Lee, 2009. "Wealth Distribution, Inflation Tax, and Societal Benefits of Illiquid Bonds," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(5), pages 809-830, August.
    7. Kim, Young Sik & Lee, Manjong, 2010. "A model of debit card as a means of payment," Journal of Economic Dynamics and Control, Elsevier, vol. 34(8), pages 1359-1368, August.
    8. Bruno Frey, 2005. "‘‘Just forget it.’’ Memory distortions as bounded rationality," Mind & Society: Cognitive Studies in Economics and Social Sciences, Springer;Fondazione Rosselli, vol. 4(1), pages 13-25, June.
    9. Lee, Manjong, 2010. "Carrying cost of money and real effects of denomination structure," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 326-337, March.
    10. Aliprantis, C.D. & Camera, G. & Ruscitti, F., 2009. "Monetary equilibrium and the differentiability of the value function," Journal of Economic Dynamics and Control, Elsevier, vol. 33(2), pages 454-462, February.
    11. Sébastien Lotz & Andrei Shevchenko & Christopher Waller, 2007. "Heterogeneity and Lotteries in Monetary Search Models," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2‐3), pages 703-712, March.
    12. Lee, Manjong, 2013. "Coexistence and welfare cost of inflation," Journal of Macroeconomics, Elsevier, vol. 36(C), pages 23-32.
    13. Thomas Wiseman, 2015. "A Note on the Essentiality of Money under Limited Memory," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(4), pages 881-893, October.
    14. Berentsen, Aleksander & Camera, Gabriele & Waller, Christopher, 2007. "Money, credit and banking," Journal of Economic Theory, Elsevier, vol. 135(1), pages 171-195, July.
    15. Young Sik Kim & Manjong Lee, 2009. "Wealth Distribution, Inflation Tax, and Societal Benefits of Illiquid Bonds," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(5), pages 809-830, August.
    16. Lotz, Sebastien, 2004. "Introducing a new currency: Government policy and prices," European Economic Review, Elsevier, vol. 48(5), pages 959-982, October.
    17. Kazuya Kamiya & Takashi Shimizu, 2007. "Existence of Equilibria in Matching Models of Money: A New Technique," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 32(3), pages 447-460, September.
    18. Shouyong Shi, 2006. "A Microfoundation of Monetary Economics," Working Papers tecipa-211, University of Toronto, Department of Economics.

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    More about this item

    Keywords

    Money; Search; Lotteries; Price Dispersion; Wealth Distribution;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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