Monetary Equilibria with Indivisible Goods

Journal of Economic Theory

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 di¤erent assumptions about price determination. Bargaining generates a price and allocation that are independent of the nominal interest or in ‡ation 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.

2001

We study economies where all commodities are indivisible at the individual level, but perfectly divisible at the aggregate level. We introduce a new competitive equilibrium concept. Paper money (fiat money) which does not influence agents preferences may be ...

We study economies where all commodities are indivisible at the individual level, but perfectly divisible at the aggregate level. We introduce a new competitive equilibrium concept. Paper money (fiat money) which does not influence agents preferences may be used to facilitate exchange. We prove the existence of a strictly positive price of fiat money. We establish a core equivalence result, and first and second welfare theorems for weak Pareto optima. Later, we study asymptotic behavior when indivisibilities are small.

Journal of Mathematical Economics, 2017

We study a production economy where all consumption goods are indivisible at the individual level but perfectly divisible at the overall economy level. In order to facilitate the exchange in this setting, we introduce a perfectly divisible parameter that does not enter into consumer preferences (fiat money). When consumption goods are indivisible, a Walras equilibrium does not necessarily exist. We introduce a rationing equilibrium concept and proof its existence. Unlike the standard Arrow-Debreu model, fiat money can always have a strictly positive price at the rationing equilibrium. In our set up a rationing equilibrium is a Walras equilibrium, provided that the initially endowed of fiat money is dispersed.

Journal of Economic Theory, 2008

In a general-equilibrium economy with nonconvexities, there are sunspot equilibria with good welfare properties; sunspots can ameliorate the effects of the nonconvexities. For these economies, we show that agents act as if they have quasi-linear utility functions. We use this result to construct a new model of monetary exchange along the lines of Lagos and Wright, where trade occurs in both centralized and decentralized markets, but instead of quasi-linear preferences we assume general preferences but with indivisible labor. This suggests that modern monetary theory is more robust than one might have thought. It also constitutes progress on the classic problem of integrating monetary economics and general-equilibrium theory.

2017

Whether currency can be efficiently provided by private competitive money suppliers is arguably one of the fundamental questions in monetary theory. It is also one with practical relevance because of the emergence of multiple competing financial assets as well as competing cryptocurrencies as means of payments in certain class of transactions. In this paper, a dual currency version of Lagos and Wright (2005) money search model is used to explore the answer to this question. The centralized market sub-period is modeled as infinitely repeated game between two long lived players (money suppliers) and a short lived player (a continuum of agents), where longetivity of the players refers to the ability to influence aggregate outcomes. There are multiple equilibria, however we show that equilibrium featuring lowest inflation tax is weakly renegotiation proof, suggesting that better inflation outcome is possible in an environment with currency competition.

Journal of Fixed Point Theory and Applications, 2009

In this paper we consider a general equilibrium model with a finite number of divisible and indivisible commodities. In models with indivisibilities it is typically assumed that there is only one perfectly divisible good, which serves as money. The presence of money in the model is used to transfer the value of certain amounts of indivisible goods. For such economies with one divisible commodity Danilov et al. showed the existence of a general equilibrium if the individual demands and supplies belong to a same class of discrete convexity. For economies with multiple divisible goods and money van der Laan et al. proved existence of a general equilibrium if the divisible goods are produced out of money using a linear production technology and no other producers are present in the model.

Journal of Monetary Economics, 2007

Search models of monetary exchange have typically relied on Nash (1950) bargaining, or strategic games that yield an equivalent outcome, to determine the terms of trade. By considering alternative axiomatic bargaining solutions in a search model with divisible money, we show that the properties of the bargaining solutions do matter both qualitatively and quantitatively for questions of …rst-degree importance in monetary economics such as: (i) the e¢ ciency of monetary equilibrium; (ii) the optimality of the Friedman rule and (iii) the welfare cost of in ‡ation.

Handbook of Monetary Economics, 1990

Journal of Economic Theory, 2002

We introduce lotteries (randomized trading) into search-theoretic models of money. In a model with indivisible goods and fiat money, we show goods trade with probability 1 and money trades with probability {, where {<1 iff buyers have sufficient bargaining power. With divisible goods, a nonrandom quantity q trades with probability 1 and, again, money trades with probability { where {<1 iff buyers have sufficient bargaining power. Moreover, q never exceeds the efficient quantity (not true without lotteries). We consider several extensions designed to get commodities as well as money to trade with probability less than 1, and to illuminate the efficiency role of lotteries. Journal of Economic Literature Classification Numbers: E40, D83.