We consider an economy where trade is decentralized and agents have incomplete information with respect to the value of money. Agents' learning evolves from private experiences and we explore how the formation of prices interacts with learning. We show that multiple equilibria arise, and equilibria with price dispersion entail more learning than equilibria with one price. Price dispersion increases communication about private histories, which in turn increases the overall amount of information in the economy. We also compare welfare under price dispersion and one price. Our results show that, despite the existence of some meetings where no trade takes place, welfare under price dispersion may be higher than under one price
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Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number
118.
Length: Date of creation: 2004 Date of revision: Handle: RePEc:red:sed004:118
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Find related papers by JEL classification: C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
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