We study economies with an essential role for liquid assets in transactions. The model can generate multiple stationary equilibria, across which asset prices, market participation, capitalization, output, and welfare are positively related.
We revisit classic questions concerning the effects of money on investment in a new framework: a two-sector model where some trade occurs in centralized and some in decentralized markets, as in recent monetary theory, but extended to include capital.
This paper pursues a line of Cass and Shell, who advocate monetary models that are "genuinely dynamic and fundamentally disaggregative" and incorporate "diversity among households and variety among commodities."
We study models that combine search, monetary exchange, price posting by sellers, and buyers with preferences that differ across random meetings—say, because sellers in different meetings produce different varieties of the same good.
Recent work has reduced the gap between search-based monetary theory and mainstream macroeconomics by incorporating into the search model some centralized markets as well as some decentralized markets where money is essential.
The simple search-theoretic model of fiat money has three symmetric Nash equilibria: all agents accept money with probability 1; all agents accept money with probability 0; and all agents accept money with probability y is an element of (0,1).