Working Paper

Dynamic monetary equilibrium in a random-matching economy

Abstract: This article concerns decentralized trading and efficiency. As in Gale (1986a, b), traders transfer endowments of divisible goods in random, pairwise meetings that take place in discrete time. Anonymity and absence of time preference forestall strategic power. As in Kiyotaki and Wright (1989), and in contrast to Gale, trade and consumption occur repeatedly. Absence of double coincidence of wants makes money essential. There is a continuum of welfare-ranked equilibria in which the level of economic activity is decreasing in the price level, from which Gale abstracts by focusing on relative prices. This indeterminacy constitutes coordination failure.

Keywords: Money; Trade; Consumption (Economics); Stock market;

Bibliographic Information

Provider: Federal Reserve Bank of Chicago

Part of Series: Working Paper Series

Publication Date: 2000

Number: WP-00-1