On the Friedman Rule in Search Models with Divisible Money
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]
|Collections||ANU Research Publications|
|Source:||Contributions to Macroeconomics|
Items in Open Research are protected by copyright, with all rights reserved, unless otherwise indicated.