Hostname: page-component-78c5997874-4rdpn Total loading time: 0 Render date: 2024-11-11T05:59:26.363Z Has data issue: false hasContentIssue false
  • English
  • Français

DECENTRALIZED EXCHANGE AND FACTOR PAYMENTS: A MULTIPLE-MATCHING APPROACH

Published online by Cambridge University Press:  07 September 2011

Derek Laing ,
Victor E. Li  and
Ping Wang
Derek Laing
Affiliation:
Syracuse University
Victor E. Li*
Affiliation:
Villanova University
Ping Wang
Affiliation:
Washington University in St. Louis and NBER
*
Address correspondence to: Victor Li, Department of Economics, Villanova University, Villanova, PA 19406, USA; e-mail: victor.li@villanova.edu.
Get access Rights & Permissions [Opens in a new window]

Abstract

The emergence of fiat money is studied in a multiple-matching environment in which exchange is organized around trading posts and prices are determined with a dynamic monopolistically competitive framework. Each household consumes a bundle of commodities and has a preference for consumption variety. We determine the endogenous organization of exchange between firms and shoppers, the means of factor payment (remuneration), and the prices at which these trades occur. We verify that the endogenous linkage of factor payments with the medium of exchange can lead to a monetary equilibrium outcome where only fiat money trades for goods, an ex ante feature of cash-in-advance models. We also examine the long-run effects of money growth on equilibrium exchange patterns. A key finding, consistent with documented hyperinflationary episodes, is that a sufficiently rapid expansion of the money supply leads to the gradual emergence of barter, where sellers accept both goods and cash payments and workers receive part of their remuneration in goods.

Keywords

Product VarietyFactor PaymentsMoney vs. Barter
Type
Articles
Information
Macroeconomic Dynamics , Volume 17 , Issue 1 , January 2013 , pp. 54 - 88
Copyright
Copyright © Cambridge University Press 2011

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Aliprantis, Charalambos D., Camera, Gabriele and Puzzello, Daniela (2007) A random matching theory. Games and Economic Behavior 59, 1–16.CrossRefGoogle Scholar
Blanchard, Olivier and Kiyotaki, Nobuhiro (1987) Monopolistic competition and the effects of aggregate demand. American Economic Review 77, 647–666.Google Scholar
Camera, Gabriele and Corbae, Dean (1999) Money and price dispersion. International Economic Review 40, 985–1008.CrossRefGoogle Scholar
Casella, Allesandra and Feinstein, Jonathan (1990) Economic exchange during hyperinflation. Journal of Political Economy 98, 1–27.CrossRefGoogle Scholar
Diamond, Peter A. and Yellin, Janet (1990) Inventories and money holdings in a search economy. Econometrica 58, 929–950.CrossRefGoogle Scholar
Dixit, Avinash and Stiglitz, Joseph (1977) Monopolistic competition and optimum product diversity. American Economic Review 67, 297–308.Google Scholar
Ericson, Richard and Ickes, Barry (2001) A model of Russia's virtual economy. Review of Economic Design 6, 185–214.CrossRefGoogle Scholar
Fuerst, Timothy S. (1992) Liquidity, loanable funds, and real activity. Journal of Monetary Economics 33, 3–24.CrossRefGoogle Scholar
Howitt, Peter (2005) Beyond search: Fiat money in organized exchange. International Economic Review 46, 405–429.CrossRefGoogle Scholar
Kiyotaki, Nobuhiro and Wright, Randall (1989) On money as a medium of exchange. Journal of Political Economy 97, 927–954.CrossRefGoogle Scholar
Kiyotaki, Nobuhiro and Wright, Randall (1993) A search theoretic approach to monetary economics. American Economic Review 83, 63–77.Google Scholar
Kocherlakota, Narayana and Wallace, Neil (1989) Incomplete record-keeping and optimal payment arrangements. Journal of Economic Theory 81, 272–289.CrossRefGoogle Scholar
Lagos, Ricardo and Wright, Randall (2005) A unified framework for monetary theory and policy analysis. Journal of Political Economy 113, 463–484.CrossRefGoogle Scholar
Laing, Derek, Li, Victor E. and Wang, Ping (2007) Inflation and productive activity in a multiple-matching model of money. Journal of Monetary Economics 54, 1949–1961.CrossRefGoogle Scholar
Lerner, Eugene M. (1969) Inflation in the Confederacy, 1861–1865. In Friedman, Milton (ed.), The Optimum Quantity of Money and Other Essays. Chicago: Aldine.Google Scholar
Li, Victor E. (1995) The optimal taxation of fiat money in search equilibrium. International Economic Review 36, 927–942.CrossRefGoogle Scholar
Li, Victor E. (2001) Is why we use money important? Federal Reserve Bank of Atlanta Economic Review (First Quarter), 17–30.Google Scholar
Molico, Miguel (2006) The distribution of money and prices in search equilibrium. International Economic Review 47, 701–722.CrossRefGoogle Scholar
Rupert, Peter, Shevchenko, Anderi, Schindler, Martin and Wright, Randall (2000) The search-theoretic approach to monetary economics: A primer. Federal Reserve Bank of Cleveland Economic Review 36, 10–28.Google Scholar
Shevchenko, Anderi (2004) Middlemen. International Economic Review 45, 1–24.CrossRefGoogle Scholar
Shi, Shouyong (1997) A divisible search model of fiat money. Econometrica 65, 467–496.CrossRefGoogle Scholar
Shubik, Martin (1973) Commodity money, oligopoly, credit and bankruptcy in a general equilibrium model. Western Economic Journal 11, 24–38.Google Scholar
Starr, Ross M. and Stinchcombe, Maxwell B. (1999) Exchange in a network of trading posts. In Markets, Information and Uncertainty: Essays in Economic Theory in Honor of Kenneth J. Arrow, pp. 217–234. Cambridge, UK: Cambridge University Press.Google Scholar
Tallman, Ellis and Wang, Ping (1995) Money demand and the relative price of capital goods in hyperinflations. Journal of Monetary Economics 36, 375–404.CrossRefGoogle Scholar
Trejos, Alberto and Wright, Randall (1995) Search, bargaining, money and prices. Journal of Political Economy 103, 118–141.CrossRefGoogle Scholar