Perfectly competitive bilateral exchange without discounting

Edward Green and Ruilin Zhou ()

Journal of Monetary Economics, 2010, vol. 57, issue 2, 121-131

Abstract: In a random-matching economy of traders who maximize cumulative consumption (overtaking criterion), the stationary, Markov, Bayesian-perfect equilibrium is studied. At such equilibrium, two results hold: (1) perfect substitutability between current and future consumption implies a no-surplus condition; and (2) by the no-surplus condition, there is a nominal price at which all trades must occur. These results strengthen the seminal results of Ostroy (1973) regarding monetary bilateral exchange in two ways: the incentive compatibility of the equilibrium trading pattern is established and a less roundabout trading pattern enhances welfare by enabling consumption to occur more frequently.

Keywords: Monetary; bilateral; exchange; Random; matching (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:57:y:2010:i:2:p:121-131

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