DIVISIBLE MONEY IN AN ECONOMY WITH VILLAGES

Working Papers from University of Toronto, Department of Economics

Abstract: This paper provides a tractable search model with divisible money that encompasses the two frameworks currently used in the literature. Individuals belong to many villages. Inside a village, individuals know each other so financial contracts are feasible. Money is essential to facilitate trade across villages. When financial markets inside a village are complete, the model generalizes the framework advanced by Lagos and Wright (2005) without having to assume quasi-linear preferences. Likewise, complete financial markets in each village substitutes for the representative household in the framework advanced by Shi (1997). The paper describes sets of financial arrangements that complete the markets inside the villages. In general, these financial arrangements include a combination of credit and insurance. However, if individuals choose period by period the trading role they play outside their village, then under some parametric restrictions either a lottery or a risk-free bond market are sufficient.

Keywords: monetary search; divisible money (search for similar items in EconPapers)
JEL-codes: E40 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-fmk, nep-mac and nep-mon
Date: 2006-03-31
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http://repec.economics.utoronto.ca/files/tecipa-216-1.pdf Main Text (application/pdf)

Related works:
Working Paper: Divisible Money in an Economy with Villages (2004)
Working Paper: Divisible Money in an Economy with Villages (2004)
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