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Choice of market in the monetary economy

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  • Ryoji Hiraguchi
  • Keiichiro Kobayashi

Abstract

We investigate a monetary model `a la Lagos and Wright (2005), in which there are two kinds of decentralized markets, and each agent stochastically chooses which one to participate in by expending effort. In one market, the pricing mechanism is competitive, whereas in the other market, the terms of trade are determined by Nash bargaining. It is shown that the optimal monetary policy may deviate from the Friedman rule. As the nominal interest rate deviates from zero, buyers expend more effort because a higher interest rate increases the gain for buyers from entering the competitive market, while the marginal increase in social welfare by entering the competitive market is also positive.

Suggested Citation

  • Ryoji Hiraguchi & Keiichiro Kobayashi, 2015. "Choice of market in the monetary economy," CIGS Working Paper Series 15-002E, The Canon Institute for Global Studies.
    • Handle: RePEc:cnn:wpaper:15-002e
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    References listed on IDEAS

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    1. Guillaume Rocheteau & Randall Wright, 2005. "Money in Search Equilibrium, in Competitive Equilibrium, and in Competitive Search Equilibrium," Econometrica, Econometric Society, vol. 73(1), pages 175-202, January.
    2. Ayres, Ian & Siegelman, Peter, 1995. "Race and Gender Discrimination in Bargaining for a New Car," American Economic Review, American Economic Association, vol. 85(3), pages 304-321, June.
    3. Hiraguchi, Ryoji & Kobayashi, Keiichiro, 2014. "On the optimality of the Friedman rule in a New Monetarist model," Economics Letters, Elsevier, vol. 125(1), pages 57-60.
    4. Nosal, Ed & Rocheteau, Guillaume, 2011. "Money, Payments, and Liquidity," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262016281, April.
    5. Moti Jaleta & Cornelis Gardebroek, 2007. "Farm‐gate tomato price negotiations under asymmetric information," Agricultural Economics, International Association of Agricultural Economists, vol. 36(2), pages 245-251, March.
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