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On the Friedman Rule in Search Models with Divisible Money

Berentsen, Aleksander; Rocheteau, Guillaume

Description

This paper studies the validity of the Friedman rule in a search model with divisible money and divisible goods in which the terms of trades are determined endogenously. We show that ex post bargaining generates a holdup problem similar to the one emphasized in the labor-market literature. Buyers cannot obtain the full return that an additional unit of money provides to the match, which makes the purchasing power of money inefficiently low in equilibrium. Consequently, even though the Friedman...[Show more]

CollectionsANU Research Publications
Date published: 2003
Type: Journal article
URI: http://hdl.handle.net/1885/74120
Source: Contributions to Macroeconomics

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