 Money and price posting under private informationMei Dong () and Janet Hua Jiang Journal of Economic Theory, 2014, vol. 150, issue C, 740-777 Abstract: We study price posting with undirected search in a search-theoretic monetary model with divisible money and divisible goods. Ex ante homogeneous buyers experience match-specific preference shocks in bilateral trades. The shocks follow a continuous uniform distribution, and the realizations of the shocks are private information. We show that there exists a unique monetary equilibrium for generic values of the inflation rate. In equilibrium, each seller posts a continuous pricing schedule that exhibits quantity discounts. Buyers may spend nothing, a fraction or all of their money holdings, depending on their preference-shock realizations. Inflation reduces the extent of non-linear pricing. The model captures the hot-potato effect of inflation along both the extensive margin, as an increase in the trading probability, and the intensive margin, as higher fractions of money being spent. Keywords: Money; Price; Undirected search; Private information (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:150:y:2014:i:c:p:740-777 DOI: 10.1016/j.jet.2013.12.005 Access Statistics for this article Journal of Economic Theory is currently edited by A. Lizzeri and K. Shell More articles in Journal of Economic Theory from Elsevier |
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