Report

Individual and aggregate real balances in a random matching model

Abstract: This paper investigates the characteristics of stationary single-price equilibrium in a monetary random-matching model where agents can hold an arbitrary amount of divisible money and where production is costly. At such an equilibrium, agents? money holdings are endogenously determined and uniformly bounded. A refinement of weakly undominated strategies is argued to be necessary. It is shown that a continuum of single-price equilibria indexed by the aggregate real-money balance exists if one such equilibrium exists. Equilibria with different money-holdings upper bounds, hence different distributions, but with identical aggregate real-money balances, can coexist.

Keywords: Prices; Money theory;

Status: Published in International Economic Review (Vol. 40, No. 4, November 1999, pp. 1009-1038)

Bibliographic Information

Provider: Federal Reserve Bank of Minneapolis

Part of Series: Staff Report

Publication Date: 1996

Number: 222