Money and the Gains from Trade

Aleksander Berentsen and Guillaume Rocheteau

No 100, IEW - Working Papers from Institute for Empirical Research in Economics - University of Zurich

Abstract: This paper studies the role of money in environments where in each meeting there is a double coincidence of real wants. Traders who meet at random finance their purchases through current production, the sale of divisible money or both. It is shown that in the absence of valued money if traders have asymmetric tastes for each other�s good, they produce and exchange socially ine .cient quantities. With valued money, however, traders exchange efficient quantities if the asymmetry of tastes is not too large. It is shown that the gains from trade in the monetary economy are strictly greater than those in the corresponding barter economy, that the Friedman rule holds, and that the allocation of resources in the monetary economy converges to the allocation in the barter economy as the growth rate of the money supply is increased.

Keywords: Money; Double Coincidence; Bargaining; Search. (search for similar items in EconPapers)
JEL-codes: D83 E00 E52 (search for similar items in EconPapers)
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Citations: View citations in EconPapers (19)

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Journal Article: Money and the Gains from Trade (2003)
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