the optimal taxation of fiat money in search equilibrium this paper investigates the link between welfare and the taxation of money in the context of a general equilibrium search model where decentralized trading motivates the use of fiat money since buyers with money must invest effort or search intensity to contact sellers with goods a natural trading externality arises given a sufficiently productive economy search efforts will be too low relative to social efficiency this provides a welfare improving role for policies which tax money balances the nature of this role is explored and its implications for optimal monetary policy discussed copyright 1995 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the distribution of money and prices in search equilibrium this article considers a search theoretic model of monetary exchange agents bargain over both the amount of money and the quantity of goods to be exchanged in bilateral meetings determining endogenously the distributions of money and of prices i show that money is neutral if changes in the money supply are accomplished via proportional transfers however within the class of lump sum transfers an increase of the rate of monetary expansion tends to decrease the dispersion of wealth and prices and to improve welfare when inflation is low but when inflation is high enough the opposite effects occur

beyond search fiat money in organized exchange am odel offiat money is constructed in which spatial separation and the logistics of communication are made explicit as in search theory but in which exchange is organized by profit seeking business enterprises as in all market economies firms mitigate search costs by opening shops that are easily located the model endogenizes the number of shops and which objects are traded in each shop it permits the double coincidence of wants and deals easily with divisible commodities equilibria may exist in which fiat money is used as a universal medium of exchange when such an equilibrium exists fiat money is essential in the sense that it is the universal medium of exchange in any efficient network of shops the model provides a foundation to cash in advance theory without specifying in advance that one object will be used as the universal medium of exchange

competitive search equilibrium in monetary economies abstract competitive search was recently introduced in monetary economics by rocheteau and wright money in search equilibrium in competitive equilibrium and in competitive search equilibrium econometrica 73 2005 175 203 we extend their work by eliminating the restriction that the fees market makers charge to enter a submarket must be either non negative or identical for buyers and sellers without this restriction buyers pay a positive fee to enter the submarket they visit and nothing else when they meet a seller sellers are remunerated by the market makers from the entry fees collected from the buyers this trading arrangement allows buyers to perfectly predict their expenses so the opportunity cost of holding idle money balances is eliminated

competitive search equilibrium in this paper i construct an equilibrium for markets with frictions which is competitive in the sense that all agents are price takers and maximize utility subject to a set of market parameters i show that the equilibrium allocation is socially optimal i also show how the competitive search equilibrium can be achieved if employers with vacancies can advertise publicly the wages they pay

a rudimentary random matching model with divisible money and prices abstract we consider a version of kiyotaki and wright s monetary search model in which agents can hold arbitrary amounts of divisible money a continuum of stationary equilibria indexed by the aggregate real money stock exists with all trading occurring at a single price there is always a maximum level of the real money stock consistent with existence of such an equilibrium in the limit as trading becomes faster relative to discounting any real money stock becomes feasible in such an equilibrium in contrast to the original kiyotaki wright model higher equilibrium real money stocks unambiguously correspond to higher welfare in this costless production environment journal of economic literature classification numbers d51 e40

a search theoretic approach to monetary economics the essential function of money is its role as a medium of exchange the authors formalize this idea using a search theoretic equilibrium model of the exchange process that captures the double coincidence of wants problem with pure barter one advantage of the framework described here is that it is very tractable the authors also show that the model can be used to addre ss some substantive issues in monetary economics including the potenti al welfare enhancing role of money the interaction between specializat ion and monetary exchange and the possibility of equilibria with multip le fiat currencies copyright 1993 by american economic association

evil is the root of all money plenary talk delivered at the annual meeting of the society for economic dynamics this abstract was borrowed from another version of this item

a divisible search model of fiat money this paper extends the kiyotaki wright search model of fiat money to allow for divisible money and goods the extension allows me to examine the standard issues in monetary economics such as the neutrality and superneutrality of money by severing the artificial link in the kiyotaki wright model between the money supply and the number of money holders it is shown that money is neutral but not superneutral money growth generates a trading opportunity effect it changes the fraction of different agents in the economy and hence changes the probability with which agents have a successful match in addition money growth has a negative effect on the real money balance that is familiar in walrasian monetary models the balance of the two effects can imply a positive optimal money growth rate

search money and prices it is well known that models in which money is used as a medium of exchange to lubricate trading frictions display multiplicity of equilibria i show that the amount of activity varies as the value of money differs across these equilibria when production opportunities involve random fixed costs when money has high value trade is more profitable therefore there will be more agents engaged in trade relative to equilibria in which money has lower value the higher activity equilibria display higher production not only because more is produced and exchanged per transaction but also because more transactions occur per period this diamond style result is obtained without increasing returns in the matching technology

search bargaining money and prices the goal of this paper is to extend existing search theoretic models of fiat money which until now have assumed that the price level is exogenous by explicitly incorporating bilateral bargaining this allows us to determine the price level endogenously and leads to additional insights concerning the role of money for example we find that monetary equilibria are generally inefficient in the sense that output and prices differ from the solution to a social planner s problem although the difference can become small as the discount rate or search friction vanishes we also find that there exist nonstationary inflationary equilibria

do financial indicators have directional predictability for us home sales abstractthis study investigates the directional predictability of financial indicators for home sales across tranquil 1984 2005 and volatile 1972 1983 and 2006 2013 periods we find that the mortgage rate has directional predictability for both existing and newly built home sales for up to 2005 the federal funds rate generally has directional predictability for existing newly built home sales in 1984 2005 1972 1983 the term spread has directional predictability for home sales in 1972 1983 but generally not in the tranquil period of 1984 2005 further unlike mortgage and federal funds rates the term spread has directional predictability for home sales in 2006 2013 and thus can help the fed with useful information assuming that this trend continues

money in search equilibrium in competitive equilibrium and in competitive search equilibrium we compare three market structures for monetary economies bargaining search equilibrium price taking competitive equilibrium and price posting competitive search equilibrium we also extend work on the microfoundations of money by allowing a general matching technology and entry we study how equilibrium and the effects of policy depend on market structure under bargaining trade and entry are both inefficient and inflation implies first order welfare losses under price taking the friedman rule solves the first inefficiency but not the second and inflation may actually improve welfare under posting the friedman rule yields the first best and inflation implies second order welfare losses

whither monetary economics i argue that monetary economics should be pursued by applying implementation theory to models which contain explicit frictions that make money essential the argument has two parts first i argue that models in which real balances are assumed to be productive models with money in utility or production functions or with cash in advance constraints contain hidden inconsistencies second i argue that the approach advocated is capable of providing new insights about some of the main issues in monetary economics the effects of monetary shocks the welfare cost of inflation and the roles of inside and outside money

on money as a medium of exchange we analyze economies in which individuals specialize in consumption and production and meet randomly over time in a way that implies that trade must be bilateral and quid pro quo nash equilibria in trading strategies are characterized certain goods emerge endogenously as media of exchange or commodity money depending both on their intrinsic properties and on extrinsic beliefs there are also equilibria with genuine fiat currency circulating as the general medium of exchange we find that equilibria are not generally pareto optimal and that introducing fiat currency into a commodity money economy may unambiguously improve welfare velocity acceptability and liquidity are discussed

holdups and efficiency with search frictions a natural holdup problem arises in a market with search frictions firms have to make a range of investments before finding their employees and larger investments translate into higher wages in particular when wages are determined by ex post bargaining the equilibrium is always inefficient recognizing that capital intensive production relations have to pay higher wages firms reduce their investments this can only be prevented by removing all the bargaining power from the workers but this in turn depresses wages below their social product and creates excessive entry of firms in contrast to this benchmark we show that efficiency is achieved when firms post wages and workers can direct their search toward more attractive offers this efficiency result generalizes to an environment with imperfect information where workers only observe a few of the equilibrium wage offers we show that the underlying reason for efficiency is not wage posting per se but the ability of workers to direct their search toward more capital intensive jobs

competitive pricing and efficiency in search equilibrium we consolidate and generalize some results on price determination and efficiency in search equilibrium extending models by rubinstein and wolinsky and by gale heterogeneous buyers and sellers meet according to a general matching technology and prices are determined by a general bargaining condition when the discount rate r and search costs converge to 0 we show that prices in all exchanges are the same and equal the competitive market clearing price given positive search costs efficiency obtains iff bargaining satisfies hosios condition and r 0 when prices are set by third party market makers however we show that search equilibrium is necessarily efficient

a contribution to the pure theory of money abstract this article analyzes a general equilibrium model with search frictions and differentiated commodities because of the many differentiated commodities barter is difficult in that it requires a double coincidence of wants and this provides a medium of exchange role for fiat currency we prove the existence of equilibrium with valued fiat money and show it is robust to certain changes in the environment rate of return dominance liquidity and the welfare implications of fiat money are discussed

money and prices a model of search and bargaining abstract this paper makes commodities divisible and incorporates bargaining into the search theoretic model of money to determine the purchasing power of money or price it is shown that two monetary equilibria always coexist where fiat money is universally accepted the two equilibria differ in price output welfare and the velocity of money sunspot monetary equilibria exist in which money is universally accepted in all states of the economy multiplicity has novel implications on the effectiveness of currency substitution and exchange market intervention journal of economic literature classification numbers c78 e40

money is memory abstract this paper examines the sets of feasible allocations in a large class of economic environments in which commitment is impossible following myerson 8 the standard definition of feasibility is adapted to take account of the lack of commitment the environments feature either memory or money memory is defined as knowledge on the part of an agent of the full histories of all agents with whom he has had direct or indirect contact in the past money is defined as an object that does not enter utility or production functions and is available in fixed supply the main proposition is that any allocation that is feasible in an environment with money is also feasible in the same environment with memory depending on the environment the converse may or may not be true hence from a technological point of view money is equivalent to a primitive form of memory journal of economic literature classification numbers e40 c73 d82

asset trading mechanisms and expansionary policy abstract previous authors have argued that the otimal monetary policy is contractionary if buyers value consumption substantially more than sellers there is some randomness and informational constraints make asset trading useful we show that there is an incentive compatible expansionary policy that dominates all incentive compatible contractionary policies

the efficiency of monetary exchange in search equilibrium search theoretic models of money emphasize monetary exchange as the outcome of economic environments characterized by bilateral trading frictions this paper analyzes the efficiency of monetary exchange in a search model of fiat money where individuals invest costly effort in the exchange process because the optimal effort each individual trader invests in exchange is based upon the private rather than social gains from trade decentralized monetary equilibria are shown to be inefficient relative to the social optimum however for an appropriate division of the gains from trade given to buyers and sellers it is possible to attain social efficiency the nature of these search externalities for monetary exchange and their implications for policy are evaluated and discussed copyright 1997 by ohio state university press