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Working paper 495
Guido Menzio, Shouyong Shi, Hongfei Sun, "A Monetary Theory with Non-degenerate Distributions", 2013-08-17
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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 individuals' 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.

Keywords: Money; Distribution; Search; Lattice-Theoretic.

JEL Classification: E00;E4;C6

Last updated on July 12, 2012