A model of money with multilateral matching

Manolis Galenianos and Philipp Kircher

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We develop a model of decentralized monetary exchange to examine the distributional effects of inflation across heterogeneous agents. The agents have private information about their productivity, preferences, or money holdings. Matching is multilateral and each seller is visited by a stochastic number of buyers. The good is allocated according to a second-price auction in money. In equilibrium, homogeneous buyers hold different amounts of money leading to price dispersion. We find the closed-form solution for the distribution of money holdings. Entry of sellers is suboptimal except at the Friedman rule. Inflation acts as a regressive tax.

Keywords: Money; Private information; Multilateral matching (search for similar items in EconPapers)
JEL-codes: E40 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (23)

Published in Journal of Monetary Economics, 2008, 55(6), pp. 1054-1066. ISSN: 0304-3932

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