Munich Personal RePEc Archive

Barter, Money and Direct Search Equilibrium

Ang, Joshua Ping (2014): Barter, Money and Direct Search Equilibrium.

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Given the adoption of crypto-bartering during the 2018 financial crisis in Venezuela, a direct Internet search for bartering opportunities, or communities in Greece and Russia exploring barter systems, why does the use of direct search technology not undermine the importance of traditional forms of money? In this paper, I demonstrate how a market with more types of goods leads to greater dependence on money for exchange transactions. Ultimately, agents self-impose a constraint on their search for goods only if they hold money when the number of good types is infinite or sufficiently large. This result serves to reconcile competing mainstream views by showing that the cash-in- advance constraint emerges as a subset of the money search model. Bartering exists if and only if the number of good types is sufficiently small that a double coincidence of wants is more likely to occur. The condition for the existence of a monetary equilibrium depends on a large number of different specialized goods. The reversion to a monetary economy from sporadic bartering becomes inevitable when the economy expands and agents demand more types of specialized goods.

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