The distribution of money and prices in an equilibrium with lotteries [chapter]

Aleksander Berentsen, Gabriele Camera, Christopher Waller
Studies in Economic Theory  
We construct a tractable 'fundamental' model of money with equilibrium heterogeneity in money balances and prices. We do so by considering randomized monetary trades in a standard search-theoretic model of money where agents can hold multiple units of indivisible 'tokens' and can offer lotteries on monetary transfers. By studying a simple trading pattern, we can analytically characterize the monetary distribution. Interestingly, such distributions match those observed in numerically simulated
more » ... rically simulated economies with fully divisible money and price heterogeneity.
doi:10.1007/3-540-29500-3_9 fatcat:cj5ruqt555dknl4w2dxi4hrfxm