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Revisiting Multiplicity of Bubble Equilibria in a Search Model with Posted Prices

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  • Rabinovich Stanislav

    (Amherst College, Department of Economics, P.O. Box 5000, Amherst, MA 01002–5000, USA)

Abstract

Multiplicity of equilibria naturally obtains in search models of money with price posting: buyers’ money holdings depend on posted prices, which, in turn, depend on buyers’ money holdings. I show that this multiplicity of equilibria exists in general even when money is replaced with a dividend-bearing asset, as long as the asset is useful as a medium of exchange. If the fundamental value of the asset is sufficiently high, there is a unique equilibrium, in which the price of the asset equals its fundamental value. For lower fundamental values, there is a continuum of bubble equilibria, in which the price of the asset exceeds the fundamental value. For very low fundamental values, the equilibrium is again unique but the asset is not used as a medium of exchange. I characterize the set of symmetric and asymmetric bubble equilibria for both positive and negative fundamental values.

Suggested Citation

  • Rabinovich Stanislav, 2017. "Revisiting Multiplicity of Bubble Equilibria in a Search Model with Posted Prices," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 17(1), pages 1-15, January.
    • Handle: RePEc:bpj:bejtec:v:17:y:2017:i:1:p:15:n:11
    DOI: 10.1515/bejte-2016-0144
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    References listed on IDEAS

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    Cited by:

    1. Baughman, Garth & Rabinovich, Stanislav, 2021. "Capacity choice, monetary trade, and the cost of inflation," European Economic Review, Elsevier, vol. 134(C).
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    3. Baughman, Garth & Rabinovich, Stanislav, 2019. "Self-confirming price dispersion in monetary economies," Journal of Economic Theory, Elsevier, vol. 183(C), pages 284-311.
    4. Han Han & Benoit Julien & Asgerdur Petursdottir & Liang Wang, 2017. "Asset Pricing Equilibria with Indivisible Goods," Working Papers 201705, University of Hawaii at Manoa, Department of Economics.

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    More about this item

    Keywords

    search; money; multiplicity; indeterminacy; liquidity;
    All these keywords.

    JEL classification:

    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

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