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Equilibrium using credit or money with indivisible goods

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  • Han, Han
  • Julien, Benoît
  • Petursdottir, Asgerdur
  • Wang, Liang

Abstract

This note studies the trade of indivisible goods using credit or money in a frictional market. We show how indivisibility matters for monetary equilibrium under different assumptions about price determination. Bargaining generates a price and allocation that are independent of the nominal interest or inflation rate over some range. This is not the case with price posting and directed search. In either case, we provide conditions (the nominal rate cannot be too high) under which stationary monetary equilibrium exists, and we show it is unique or generically unique.

Suggested Citation

  • Han, Han & Julien, Benoît & Petursdottir, Asgerdur & Wang, Liang, 2016. "Equilibrium using credit or money with indivisible goods," Journal of Economic Theory, Elsevier, vol. 166(C), pages 152-163.
    • Handle: RePEc:eee:jetheo:v:166:y:2016:i:c:p:152-163
    DOI: 10.1016/j.jet.2016.08.007
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    References listed on IDEAS

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    19. Kiyotaki, Nobuhiro & Wright, Randall, 1993. "A Search-Theoretic Approach to Monetary Economics," American Economic Review, American Economic Association, vol. 83(1), pages 63-77, March.
    20. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(2), pages 279-298.
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    Cited by:

    1. Han, Han & Julien, Benoît & Petursdottir, Asgerdur & Wang, Liang, 2019. "Asset liquidity and indivisibility," European Economic Review, Elsevier, vol. 119(C), pages 236-250.
    2. Lorenzo Carbonari & Fabrizio Mattesini & Robert J. Waldmann, 2023. "Inflation and Welfare in a Competitive Search Equilibrium with Asymmetric Information," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(4), pages 717-746, June.
    3. 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.
    4. Baughman, Garth & Rabinovich, Stanislav, 2021. "Capacity choice, monetary trade, and the cost of inflation," European Economic Review, Elsevier, vol. 134(C).
    5. Kamiya, Kazuya & Kobayashi, Hajime & Shichijo, Tatsuhiro & Shimizu, Takashi, 2021. "On the monetary exchange with multiple equilibrium money holdings distributions: An experimental approach," Journal of Economic Behavior & Organization, Elsevier, vol. 183(C), pages 206-232.

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    More about this item

    Keywords

    Bargaining; Competitive search; Indivisibility; Uniqueness;
    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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