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

Rocheteau, Guillaume; Wright, Randall

doi:10.1111/j.1468-0262.2005.00568.x

Cited by 396 publications

(287 citation statements)

References 45 publications

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“…In the case of zero in ‡ation, we …nd that the welfare gain of 1.589% in the endogenous growth model is almost three times as large as the welfare gain of 0.572% in the exogenous growth model. 25 In the case of Friedman rule, the welfare gain of 7.884% in the endogenous growth model is over four times as large as the welfare gain of 1.790% in the exogenous growth model. The reasons why the endogenous growth model features a much larger welfare e¤ect of in ‡ation than the exogenous growth model are as follows.…”

Section: Numerical Resultsmentioning

confidence: 99%

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Money, random matching and endogenous growth: A quantitative analysis

Chu

Kan

Lai

et al. 2014

Journal of Economic Dynamics and Control

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In this study, we develop a search-and-matching monetary growth model to analyze the e¤ects of in ‡ation on economic growth and social welfare by introducing endogenous economic growth via capital externality into a two-sector search-and-matching model. We …nd that the channel through which in ‡ation a¤ects economic growth in the search-and-matching model is di¤erent from the traditional cash-in-advance model. To facilitate the calibration, we obtain an empirical estimate of the e¤ects of in ‡ation on economic growth using panel regressions. In the simulation analysis, we quantitatively evaluate the welfare e¤ect of in ‡ation in the search-and-matching endogenous growth model and compare it to a search-and-matching exogenous growth model. We …nd that the welfare e¤ect of in ‡ation is nonlinear in the endogenous growth model whereas it is linear in the exogenous growth model. Furthermore, we …nd that the welfare cost of in ‡ation under endogenous growth is up to four times as large as the welfare cost of in ‡ation under exogenous growth.JEL classi…cation: E41, O41, O42.

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Section: Numerical Resultsmentioning

confidence: 99%

“…Here we de…ne f d;t q t =k t as the ratio between consumption and capital in the DM and make use of (5), (17), (20), (25) and (C1) to derive…”

Section: Appendix C: Dynamic Properties Of the Search Modelmentioning

confidence: 99%

Money, random matching and endogenous growth: A quantitative analysis

Chu

Kan

Lai

et al. 2014

Journal of Economic Dynamics and Control

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“…There are two distinct types of agents (as in Rocheteau and Wright, 2005). Producers of special goods are trivial in this model: they can never consume special goods and therefore have no demand for liquid assets.…”

Section: The Modelmentioning

confidence: 99%

A tractable model of indirect asset liquidity

Herrenbrueck

Geromichalos

2017

Journal of Economic Theory

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Abstract:Assets have "indirect liquidity" if they cannot be used as media of exchange, but can be traded to obtain a medium of exchange (money) and thereby inherit monetary properties. This essay describes a simple dynamic model of indirect asset liquidity, provides closed form solutions for real and nominal assets, and discusses properties of the solutions. Some of these are standard: assets are imperfect substitutes, asset demand curves slope down, and money is not always neutral. Other properties are more surprising: prices are flexible but appear sticky, and an increase in the supply of indirectly liquid assets can decrease welfare. Because of its simplicity, the model can be useful as a building block inside a larger model, and for teaching concepts from monetary theory.Keywords: monetary-search models, asset liquidity, asset prices, monetary policyRecently, interest has increased in tractable models of asset liquidity that are easy to analyze and can provide benchmarks for understanding the relationship between monetary policy and asset market frictions. For example, Williamson (2012), Andolfatto and Williamson (2015), and Rocheteau, Wright, and Xiao (2014) analyze policy using models in which multiple assets can take the role of a medium of exchange, usually to different degrees, which makes them imperfect substitutes and the question of their relative supplies interesting. Furthermore, a number of recent papers have suggested that the notion of asset liquidity may be the key to rationalizing some long-standing asset pricing-related puzzles (see for example Lagos, 2010, Geromichalos, Herrenbrueck, and Salyer, 2013, and Jung and Lee, 2015. 1The assumption that assets such as US Treasuries or claims to capital serve as media of exchange is popular in monetary theory (going back to Geromichalos, Licari, andSuarez-Lledo, 2007, andLagos andRocheteau, 2008), but is sometimes questioned based on realism. In Geromichalos and Herrenbrueck (2012), we demonstrated that indirect asset liquidity can support many of the same conclusions, while offering an alternative microfoundation of imperfect asset substitutability: in this conception of liquidity, assets are substitutes to money because agents can sell them in a secondary financial market, and thus obtain the money needed to make a purchase. This detail is important because it implies that the structure of financial markets has first-order consequences for the 'moneyness' of different types of assets, and therefore their trading volumes and prices.However, the full version of our model did not admit a closed-form description of the solution. The goal of this essay is to simplify the model in a way which preserves its essential features, but increases its usefulness as a building block for general applications. In addition, we extend the model to the case of nominal bonds. The new model sheds light on some latent results that were not highlighted in the earlier paper: most notably, we show that in contrast to conventional wisdom, an increase in the supply of liquid ...

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“…This creates local demand conditions that can be exploited by sellers to extract a bigger surplus from buyers. Previous search monetary models with price posting and directed search follow the seller's commitment assumption on both price and quality levels posted [see Rocheteau and Wright (2005)]. Dutu questions the extent of commitment to terms of trade in the decentralized market by allowing sellers to post and commit to prices, but to allow quality to vary and be determined ex post by local market conditions.…”

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confidence: 99%