Macroeconomics with Frictions Summary of Macroeconomics with Frictions a dissertation for the degree of Doctor of Philosophy by Noritaka Kudoh. Neither money nor unemployment can be well-understood so as long as the analytical approach is restricted to the traditional Walrasian framework, in which all markets clear instantly. In an economy in which there are no frictions at all, all market activities can be made instantly and so there is no reason for either money or unemployment to exist. In my dissertation, I identify informational frictions as sources of market imperfections and investigate models in which money and unemployment arise endogenously.
Special attention is given to the price determination processes.
The first half of my dissertation focuses on monetary theory with special attention given to bilateral strategic bargaining. In my dissertation, I use a version of the search-theoretic model of money developed by Kiyotaki and Wright to study the implication of agents strategic behavior on the purchasing power of money. The aspect focused on is the presence of outside options in the bargaining process. In the existing literature, the purchasing power of money is determined by a reduced form of strategic bargaining in which the value of outside options is assumed to be either zero or some artificially imposed level. However, the value of outside options should reflect all of the information contained in the market since the search-theoretic model is a general equilibrium model.