A Monetary Theory with Non-Degenerate Distributions

Guido Menzio, Shouyong Shi and Hongfei Sun

No 273763, Queen's Economics Department Working Papers from Queen's University - Department of Economics

Abstract: Dispersion of money balances among individuals is the basis for a range of policies but it has been abstracted from in monetary theory for tractability reasons. In this paper, we fill in this gap by constructing a tractable search model of money with a non-degenerate distribution of money holdings. We assume search to be directed in the sense that buyers know the terms of trade before visiting particular sellers. Directed search makes the monetary steady state block recursive in the sense that individuals’ policy functions, value functions and the market tightness function are all independent of the distribution of individuals over money balances, although the distribution affects the aggregate activity by itself. Block recursivity enables us to characterize the equilibrium analytically. By adapting lattice-theoretic techniques, we characterize individuals’ policy and value functions, and show that these functions satisfy the standard conditions of optimization. We prove that a unique monetary steady state exists. Moreover, we provide conditions under which the steady-state distribution of buyers over money balances is non-degenerate and analyze the properties of this distribution.

Keywords: Financial; Economics (search for similar items in EconPapers)
Pages: 57
Date: 2011-03
References: Add references at CitEc
Citations:

Downloads: (external link)
https://ageconsearch.umn.edu/record/273763/files/qed_wp_1264.pdf (application/pdf)

Related works:
Journal Article: A monetary theory with non-degenerate distributions (2013)
Working Paper: A Monetary Theory with Non-degenerate Distributions (2013)
Working Paper: A Monetary Theory with Non-Degenerate Distributions (2011)
Working Paper: A Monetary Theory With Non-degenerate Distributions (2011)
Working Paper: A Monetary Theory with Non-Degenerate Distributions (2011)
Working Paper: A Monetary Theory with Non-Degenerate Distributions (2010)
Working Paper: Monetary Theory with Non-degenerate Distributions (2009)
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:ags:quedwp:273763

DOI: 10.22004/ag.econ.273763

Access Statistics for this paper

More papers in Queen's Economics Department Working Papers from Queen's University - Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().