Money and Prices: A Model of Search and Bargaining

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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.

Original languageEnglish (US)
Pages (from-to)467-496
Number of pages30
JournalJournal of Economic Theory
Volume67
Issue number2
DOIs
StatePublished - Dec 1 1995

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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