Endogenously Segmented Market in a Search-Theoretic Model of Monetary Exchange

Jonathan Chiu and Miguel Molico

No 441, 2006 Meeting Papers from Society for Economic Dynamics

Abstract: This paper studies the long run effects of monetary policy in a micro-founded model with trading frictions and endogenous market segmentation. Agents must pay a fixed cost to participate in a centralized liquidity market. By endogenizing the participation decision, this model endogenizes the responses of velocity, output, the degree of market segmentation, as well as the distribution of money. As inflation decreases, agents are induced to participate less frequently in the centralized liquidity market, leading to a lower velocity of money, a smaller liquidity market, fewer resources spent on market participation and higher heterogeneity in money holdings across agents. The welfare costs of inflation implied are different from previous papers in the literature since inflation can distort the agents consumption profile, affect market participation, and redistribute money holdings. The model provides a general framework that nests several existing search models as special cases for different specifications of the fixed cost.

Keywords: search; money; monetary policy; inflation; market segmentation (search for similar items in EconPapers)
JEL-codes: E40 E50 (search for similar items in EconPapers)
Date: 2006
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://publish.uwo.ca/~hchiu/Mkt_Seg.pdf main text (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://publish.uwo.ca/~hchiu/Mkt_Seg.pdf [302 Moved Temporarily]--> https://publish.uwo.ca/~hchiu/Mkt_Seg.pdf)

Related works:
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:red:sed006:441

Access Statistics for this paper

More papers in 2006 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.
Bibliographic data for series maintained by Christian Zimmermann ().