Two monetary models with alternating markets

Gabriele Camera and YiLi Chien

No 33, SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE

Abstract: We present a thought-provoking study of two monetary models: the cash-in-advance and the Lagos and Wright (2005) models. We report that the different approach to modeling money - reduced-form vs. explicit role - neither induces theoretical nor quantitative differences in results. Given conformity of preferences, technologies and shocks, both models reduce to one difference equation. The equations do not coincide only if price distortions are differentially imposed across models. To illustrate, when cash prices are equally distorted in both models equally large welfare costs of inflation are obtained in each model. Our insight is that if results differ, then this is due to differential assumptions about the pricing mechanism that governs cash transactions, not the explicit microfoundation of money.

Keywords: cash-in-advance; matching; microfoundations; money; inflation (search for similar items in EconPapers)
JEL-codes: E1 E4 E5 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/88729/1/775821926.pdf (application/pdf)

Related works:
Journal Article: Two Monetary Models with Alternating Markets (2016)
Working Paper: Two Monetary Models with Alternating Markets (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewp:33

DOI: 10.2139/ssrn.2340393

Access Statistics for this paper

More papers in SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().