Rationality and Stability of Equilibrium in a Search-Theoretic Model of Money

DOI: 10.4236/tel.2012.23052   PDF   HTML   XML   4,762 Downloads   7,072 Views   Citations


In this short note, I examine the rationality of money-search equilibrium in a basic second-generation money search model, which is a perfectly divisible goods and indivisible money model. I then show that only an inflationary economy can generate a socially and individually rational stable equilibrium. On the basis of this finding, I demonstrate that there is no loss of generality in an analysis that assumes dictatorial buyers in an inflationary economy, since the properties of a dictatorial buyers model are identical to those of a general inflationary economy model. The result of this paper is especially useful for empirical applications since we are generally incapable of finding data showing bargaining power. This result also alerts us against employing the second-generation model to analyze a deflationary economy and commodity money.

Share and Cite:

T. Saito, "Rationality and Stability of Equilibrium in a Search-Theoretic Model of Money," Theoretical Economics Letters, Vol. 2 No. 3, 2012, pp. 283-286. doi: 10.4236/tel.2012.23052.

Conflicts of Interest

The authors declare no conflicts of interest.


[1] A. Trejos and R. Wright, “Search, Bargaining, Money, and Prices,” Journal of Political Economy, Vol. 103, No. 1, 1995, pp. 118-141. doi:10.1086/261978
[2] T. Saito, “Toward a Search-Theoretic Approach of Modern Economic Growth, Financial Deepening, and Urbanization: A Cross-Country Perspective,” Ph.D. Dissertation, State University of New York, Buffalo, 2011, pp. 3-50.
[3] S. B. Aruoba, G. Rocheteau and C. Waller, “Bargaining and the Value of Money,” Journal of Monetary Economics, Vol. 54, No. 8, 2007, pp. 2637-2655. doi:10.1016/j.jmoneco.2007.07.003
[4] H. M. Ennis, “On Random Matching, Monetary Equilibria, and Sunspots,” Macroeconomic Dynamics, Vol. 5, No. 1, 2001, pp. 132-142. doi:10.1017/S1365100501018065

comments powered by Disqus

Copyright © 2020 by authors and Scientific Research Publishing Inc.

Creative Commons License

This work and the related PDF file are licensed under a Creative Commons Attribution 4.0 International License.