Search-Based Models of Money and Finance: An Integrated Approach

Alberto Trejos and Randall Wright

No 709, Working Papers from Federal Reserve Bank of Minneapolis

Abstract: Many applications of search theory in monetary economics use the Shi-Trejos-Wright model, hereafter STW, while applications in finance use Duffie-Grleanu-Pederson, hereafter DGP. These approaches have much in common, and both claim to be about liquidity, but the models also differ in a fundamental way: in STW agents use assets as payment instruments when trading goods; in DGP there are no gains from exchanging goods, but agents trade because they value assets differently with goods serving as payment instruments. We develop a framework nesting the two. This clarifies the connection between the literatures, and generates new insights and applications. Even in the special cases of the baseline STW and DGP models, we provide propositions generalizing and strengthening what is currently known, and rederiving some existing results using more tractable arguments.

Keywords: Search; Bargaining; Money; Finance (search for similar items in EconPapers)
JEL-codes: E40 E44 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2014-03-19
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
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Citations: View citations in EconPapers (14)

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Journal Article: Search-based models of money and finance: An integrated approach (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmwp:709

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