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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]

dc.contributor.authorBerentsen, Aleksander
dc.contributor.authorRocheteau, Guillaume
dc.date.accessioned2015-12-13T22:27:50Z
dc.date.available2015-12-13T22:27:50Z
dc.identifier.issn1534-6005
dc.identifier.urihttp://hdl.handle.net/1885/74120
dc.description.abstractThis 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 rule maximizes the purchasing power of money, it fails to generate the first-best allocation of resources unless buyers have all the bargaining power.
dc.publisherBerkeley Electronic Press
dc.sourceContributions to Macroeconomics
dc.subjectKeywords: Friedman rule; Money; Search
dc.titleOn the Friedman Rule in Search Models with Divisible Money
dc.typeJournal article
local.description.notesImported from ARIES
local.description.refereedYes
local.identifier.citationvolume3
dc.date.issued2003
local.identifier.absfor140212 - Macroeconomics (incl. Monetary and Fiscal Theory)
local.identifier.ariespublicationMigratedxPub3974
local.type.statusPublished Version
local.contributor.affiliationBerentsen, Aleksander, Universitat Basel
local.contributor.affiliationRocheteau, Guillaume, College of Business and Economics, ANU
local.bibliographicCitation.issue1
local.bibliographicCitation.startpage1
local.bibliographicCitation.lastpage19
dc.date.updated2015-12-11T08:35:01Z
local.identifier.scopusID2-s2.0-14944341465
CollectionsANU Research Publications

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