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A monetary theory with non-degenerate distributions

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  • Menzio, Guido
  • Shi, Shouyong
  • Sun, Hongfei

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 individualsʼ 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.

Suggested Citation

  • Menzio, Guido & Shi, Shouyong & Sun, Hongfei, 2013. "A monetary theory with non-degenerate distributions," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2266-2312.
    • Handle: RePEc:eee:jetheo:v:148:y:2013:i:6:p:2266-2312
    DOI: 10.1016/j.jet.2013.07.020
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    More about this item

    Keywords

    Money; Distribution; Search; Lattice-theoretic;
    All these keywords.

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling

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