Contagion Equilibria in a Monetary Model
6 Pages Posted: 23 Dec 2014
Date Written: December 22, 2014
The model of Lagos and Wright  alters the meeting friction of the typical search model of money to obtain degeneracy in equilibrium holdings and enhance analytical tractability. It introduces a round of Walrasian ‘centralized’ trading after each round of bilateral random ‘decentralized’ trading. The basic premise is that, although the population meets repeatedly in the centralized market, anonymity and random pairings are frictions sufficient for money to be essential (see [9, p. 466] or [11, p. 175]; for the essentiality see [6, 8]).
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