Money and Prices in a Multiple Matching Decentralized Trading Model

Derek Laing (), Victor Li and Ping Wang
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Derek Laing: Department of Economics, State College, PA
Victor Li: Department of Economics, Princeton University

No 22, Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics

Abstract: We study price determination and exchange patterns in a monopolistically competitive economy, in which both goods and (fiat) money are perfectly divisible. The decentralized trading environment features 'multiple matches,' in which households consume bundles of commodities and have a preference for consumption variety. Although each household contacts many sellers, the variety of the consumption basket that results under barter mediated exchange is sparser than that obtained with monetary exchange. In the latter setting, households need only to locate a good they want, while in the former the more stringent double coincidence of wants must be satisfies. We examine pricing and consider the effects of monetary policy. We show that a sufficiently rapid expansion of the money supply leads to the gradual emergence of barter. Under these circumstances sellers accept both goods and cash payments and workers receive part of their remuneration in kind.

Keywords: Search; fiat money; barter; neutrality (search for similar items in EconPapers)
JEL-codes: E0 E4 (search for similar items in EconPapers)
Date: 2000-06
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Persistent link: https://EconPapers.repec.org/RePEc:van:wpaper:0022

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