Money Holdings, Inflation, and Welfare in a Competitive Market
Scott J. Dressler
Villanova University - School of Business - Economics
International Economic Review, Vol. 52, Issue 2, pp. 407-423, 2011
This article examines an environment where money is essential and agents exchange in perfectly competitive, Walrasian markets. Agents consume and produce a homogeneous good, but hold money to purchase consumption in the event of a relatively low productivity shock. A Walrasian market delivers a nondegenerate distribution of money holdings across agents and avoids some of the computational difficulties associated with the market assumption of bilateral bargaining common to search-theoretic environments. The model is calibrated to long-run U.S. velocity, and the welfare costs of inflation are assessed for variable buyer-seller ratios and persistent states of buying and selling.
Number of Pages in PDF File: 17
Date posted: April 27, 2011