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Prices, Information and Learning

Andrei Shevchenko and Luis Araujo

No 118, 2004 Meeting Papers from Society for Economic Dynamics

Abstract: We consider an economy where trade is decentralized and agents have incomplete information with respect to the value of money. Agents' learning evolves from private experiences and we explore how the formation of prices interacts with learning. We show that multiple equilibria arise, and equilibria with price dispersion entail more learning than equilibria with one price. Price dispersion increases communication about private histories, which in turn increases the overall amount of information in the economy. We also compare welfare under price dispersion and one price. Our results show that, despite the existence of some meetings where no trade takes place, welfare under price dispersion may be higher than under one price

Keywords: Money; search; learning; price dispersion (search for similar items in EconPapers)
JEL-codes: C78 D83 E31 (search for similar items in EconPapers)
Date: 2004
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More papers in 2004 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
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