17 Pages Posted: 27 Apr 2011
Date Written: May 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.
Suggested Citation: Suggested Citation
Dressler, Scott J., Money Holdings, Inflation, and Welfare in a Competitive Market (May 2011). International Economic Review, Vol. 52, Issue 2, pp. 407-423, 2011. Available at SSRN: https://ssrn.com/abstract=1824053 or http://dx.doi.org/10.1111/j.1468-2354.2011.00633.x
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