A monetary theory with non-degenerate distributions

Guido Menzio, Shouyong Shi, Hongfei Sun

Research output: Contribution to journalArticlepeer-review

13 Scopus citations

Abstract

We construct and analyze a tractable search model of money with a non-degenerate distribution of money holdings. Analytical tractability comes from modeling decentralized exchange as directed search, which makes the monetary steady state block recursive. By adapting lattice-theoretic techniques, we characterize individuals' policy and value functions, and show that these functions satisfy the standard conditions of optimization. We prove that a unique monetary steady state exists and provide conditions under which the steady-state distribution of buyers over money balances is non-degenerate. Moreover, we analyze the properties of this distribution.

Original languageEnglish (US)
Pages (from-to)2266-2312
Number of pages47
JournalJournal of Economic Theory
Volume148
Issue number6
DOIs
StatePublished - Nov 1 2013

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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