Monetary Exchange with Multilateral Matching

Benoit Julien, John Kennes and Ian King

No 05-18, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: This paper analyzes monetary exchange in a search model allowing for multilateral matches to be formed, according to a standard urn-ballprocess. We consider three physical environments: indivisible goods and money, divisible goods and indivisible money, and divisible goods and money. We compare the results with Kiyotaki and Wright (1993), Trejos and Wright (1995), and Lagos and Wright (2005) respectively. We find that the multilateral matching setting generates very simple and intuitive equilibrium allocations that are similar to those in the other papers, but which have important differences. In particular, surplus maximization can be achieved in this setting, in equilibrium, with a positive money supply. Moreover, with flexible prices and directed search, the first best allocation can be attained through price posting or through auctions with lotteries, but not through auctions without lotteries. Finally, analysis of the case of divisible goods and money can be performed without the assumption of large families (as in Shi (1997)) or the day and night structure of Lagos and Wright (2005).

Keywords: monetary exchange; directed search; ex post bidding; multilateral matching (search for similar items in EconPapers)
JEL-codes: C78 D44 E40 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2005-06, Revised 2005-10
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
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Working Paper: Monetary Exchange with Multilateral Matching (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:kud:kuiedp:0518

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