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MONEY, SEARCH, AND COSTLY MATCHMAKING

Published online by Cambridge University Press:  05 October 2000

Gabriele Camera
Gabriele Camera
Affiliation:
Purdue University
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Abstract

I examine the robustness of monetary equilibria in a random-matching model, where a more efficient mechanism for trade is available. Agents choose between two trading sectors: the search and the intermediated sector. In the former, trade partners arrive randomly and there is a trading externality. In the latter, a costly matching technology provides deterministic double-coincidence matches. Multiple equilibria exist with the extent of costly matching endogenously determined. Money and “mediated” trade may coexist. This depends on the size of the probability of a trade, relative to the cost of deterministic matching. This outcome is inferior for an increasing-returns externality. Under certain conditions, regimes with only costly matching are welfare superior to monetary regimes with random matching.

Keywords

Monetary EconomicsSearchMultiple EquilibriaCoordination Failures
Type
Research Article
Information
Macroeconomic Dynamics , Volume 4 , Issue 3 , September 2000 , pp. 289 - 323
Copyright
© 2000 Cambridge University Press

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