Money and Price Dispersion

34 Pages Posted: 21 Dec 2014

See all articles by Gabriele Camera

Gabriele Camera

Chapman University - Economic Science Institute; University of Bologna - Dept. of Economics

Dean Corbae

University of Wisconsin - Madison

Date Written: September 1, 1998

Abstract

We relax restrictions on the storage technology in a prototypical monetary search model to study price dispersion. When multiple units of currency can be stored, buyers and sellers enter matches with potentially different willingness to buy or sell. Across the distribution of possible bilateral matches, prices will generally differ even though agents have identical preferences and technologies. We provide existence conditions for a particularly simple equilibrium pattern of exchange and prices. We prove that in the limiting case where search frictions are eliminated, equilibrium prices are uniform. We also prove that a higher initial money stock raises the average price level and increases price dispersion in certain regions of the parameter space. Numerical examples are also provided.

Suggested Citation

Camera, Gabriele and Corbae, Dean, Money and Price Dispersion (September 1, 1998). Available at SSRN: https://ssrn.com/abstract=2540693 or http://dx.doi.org/10.2139/ssrn.2540693

Gabriele Camera (Contact Author)

Chapman University - Economic Science Institute ( email )

Orange, CA 92866
United States

HOME PAGE: http://www1.chapman.edu/~camera/

University of Bologna - Dept. of Economics ( email )

Strada Maggiore 45
Bologna, 40125
Italy

Dean Corbae

University of Wisconsin - Madison ( email )

716 Langdon Street
Madison, WI 53706-1481
United States

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