A Model of Money with Multilateral Matching, Second Version

Manolis Galenianos and Philipp Kircher

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: We develop a model of monetary exchange that avoids several common criticisms of the recent microfoundations literature. First, rather than random matching, we assume that buyers know the location of all sellers, and hence the process of finding a partner is deterministic, although trade is still stochastic since the number of buyers visiting a given seller is random. Second, given multilateral matching, rather than bargaining, we assume that goods are allocated according to second-price auctions. Third, given this mechanism, we do not have to assume agents can observe each other’s money holdings or preferences, as is necessary for tractability with bargaining. A novel result is that homogeneous buyers hold different amounts of money, leading to equilibrium price dispersion. We find the closed-form solution for the distribution of money holdings. We characterize equilibrium and efficient monetary policy.

Keywords: Search Theory of Money; Budget Constrained Auctions; Friedman Rule (search for similar items in EconPapers)
JEL-codes: D83 E41 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2005-12-01, Revised 2006-11-01
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:pen:papers:07-004

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