A monetary theory with non-degenerate distributions

Guido Menzio, Shouyong Shi, Hongfei Sun

    Research output: Contribution to journalArticle

    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

    Fingerprint

    Monetary theory
    Modeling
    Value function
    Buyers
    Directed search
    Policy function

    Keywords

    • Distribution
    • Lattice-theoretic
    • Money
    • Search

    ASJC Scopus subject areas

    • Economics and Econometrics

    Cite this

    A monetary theory with non-degenerate distributions. / Menzio, Guido; Shi, Shouyong; Sun, Hongfei.

    In: Journal of Economic Theory, Vol. 148, No. 6, 01.11.2013, p. 2266-2312.

    Research output: Contribution to journalArticle

    Menzio, Guido ; Shi, Shouyong ; Sun, Hongfei. / A monetary theory with non-degenerate distributions. In: Journal of Economic Theory. 2013 ; Vol. 148, No. 6. pp. 2266-2312.
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