Money Inventories in Search Equilibrium

Berentsen, Aleksander (1998): Money Inventories in Search Equilibrium. Published in: Money, Credit and Banking , Vol. 32, No. 2 (1 May 2000): pp. 168-178.

Abstract

The paper relaxes the one unit storage capacity imposed in the basic search-theoretic model of fiat money with indivisible real commodities and indivisible money. Agents can accumulate as much money as they want. It characterizes the stationary distributions of money and shows that for reasonable parameter values (e.g. production cost, discounting, degree of specialization) a monetary equilibrium exists. There are multiple stationary distributions of a given amount of money, which differ in their levels of economic activity and welfare. The model reveals two essential features of money. First, the marginal expected utility of money decreases. Second, there exists an endogenous upper bound on the money holdings: agents willingly produce and sell for money up to this bound and refuse to do so if their money holdings exceed this bound.

• Item Type: MPRA Paper
• Language: English
• Keywords: Money, Search Equilibrium, Decentralized Trade
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit

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