Money in Search Equilibrium, in Competitive Equilibrium, and in Competitive Search Equilibrium

Guillaume Rocheteau and Randall Wright

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: We compare three pricing mechanisms for monetary economies: bargaining (search equilibrium); price taking (competitive equilibrium); and price posting (competitive search equilibrium). We do this in a framework that, in addition to considering different mechanisms, extends existing work on the microfoundations of money by allowing a general matching technology and endogenous entry. We study how the nature of equilibrium and effects of policy depend on the mechanism. Under bargaining, trades and entry are both inefficient, and inflation implies a first-order welfare loss. Under price taking, the Friedman rule solves the first inefficiency but not the second, and inflation can actually improve welfare. Under posting, the Friedman rule implies first best, and inflation reduces welfare but the effect is second order.

Keywords: Money; Search (search for similar items in EconPapers)
JEL-codes: D83 E31 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2003-09-01
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (83)

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Related works:
Journal Article: Money in Search Equilibrium, in Competitive Equilibrium, and in Competitive Search Equilibrium (2005)
Working Paper: Money in search equilibrium, in competitive equilibrium, and in competitive search equilibrium (2004)
Working Paper: Money in Search Equilibrium, in Competitive Equilibrium, and in Competitive Search Equilibrium (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:pen:papers:03-031

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