Frictional Goods Markets: Theory and Applications

Bethune, Zachary; Choi, Michael; Wright, Randall

doi:10.2139/ssrn.2727597

Cited by 11 publications

(11 citation statements)

References 42 publications

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“…The baseline calibration also yields a small search cost, which is worth less than 0.1% of the buyer's expected utility in the DM, and it implies about 15% of the agents in the economy sample two prices. We can calculate the markup in the DM as DM = R p p (p=c)dF (p), and the calibrated parameters imply DM = 1:37, which is close to Bethune et al (2016).…”

Section: Basic Findingsmentioning

confidence: 75%

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Endogenous search, price dispersion, and welfare

Wang

2016

Journal of Economic Dynamics and Control

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This paper studies the welfare cost of in ‡ation in a frictional monetary economy with endogenous consumer search. Equilibrium entails price dispersion, where sellers compete for buyers by posting prices. We identify three channels through which in ‡ation a¤ects welfare. The real balance channel is the source of welfare loss. Its interaction with the price posting channel generates a welfare cost larger than Lucas (2000). The search channel reduces the welfare cost by more than one half through general equilibrium e¤ect. The aggregate e¤ect of these three channels on welfare is non-monotonic. Additionally, the welfare cost of in ‡ation ‡uctuations is negligible.

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Section: Basic Findingsmentioning

confidence: 75%

“…We want to show that there exists 2 (0; 1), z 1 > 0, z 2 > 0, and F satisfying ( ) = k, (14), (16), and Lemma (5). We …rst show that given 2 (0; 1), there exists z 1 , z 2 , and F such that type-1 buyers choose z 1 = z 1 and type-2 buyers choose z 2 = z 2 given the price distribution F (p; z 1 ; z 2 ).…”

Section: Proof Of Propositionmentioning

confidence: 99%

Endogenous search, price dispersion, and welfare

Wang

2016

Journal of Economic Dynamics and Control

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“…This multiplicity differs from classic results on indeterminacy in monetary models such as for exchange rates(Kareken and Wallace, 1981), or the price level(Sargent and Wallace, 1975), because our model features a multiplicity in real prices and trade volumes instead of nominal multiplicities.3 There exists a growing literature on monetary models with price dispersion, but these models resort to one of the other aforementioned channels to generate price dispersion -it is not due to monetary trade per se. For example,Head et al (2012) rely on non-sequential search, as inBurdett and Judd (1983), andBethune et al (2018) assume heterogeneity in search opportunities, as inLester (2011). Our mechanism is completely distinct from these.…”

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confidence: 99%

Self-confirming price dispersion in monetary economies

Baughman

Rabinovich

2019

Journal of Economic Theory

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In a monetary economy, we show that price dispersion arises as an equilibrium outcome without the need for costly simultaneous search or any heterogeneity in preferences, production costs, or search technologies. A distribution of money holdings among buyers makes sellers indifferent across a set of posted prices, leading to a nondegenerate price distribution. This price distribution, in turn, makes buyers indifferent across a range of money balances, rationalizing the non-degenerate distribution of money holdings. We completely characterize the distribution of posted prices and money holdings in any equilibrium. Equilibria with price dispersion admit higher maximum prices than observed in any single-price equilibrium. Also, price dispersion reduces welfare by creating mismatch between posted prices and money balances. Inflation exacerbates this welfare loss by shifting the distribution towards higher prices.

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“…Recently, other papers have tried to identify frictions that break the irrelevance of credit conditions. Wang, Wright and Liu (2017) and Bethune, Choi and Wright (2019) analyze models with indivisible goods, where agents face a cost of accessing credit. Since the use of money is subject to the inflation tax, while credit entails transaction costs, both may be used in equilibrium.…”

Section: Extensionsmentioning

confidence: 99%

Modeling Money and Credit: The New Monetarist View

Mattesini¹

2019

The Manchester School

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In this paper, we survey recent theoretical work on money and credit following the New Monetarist approach. We argue that a coherent macroeconomic model should show that both these institutions are essential, in the sense that they help achieve allocations that could not be attained without them. As recent literature shows, however, this is difficult to establish and requires being very explicit about the frictions that money and credit help overcome. The paper highlights the importance of microfoundations and provides a word of caution against using reduced form models in macroeconomics.

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Frictional Goods Markets: Theory and Applications

Cited by 11 publications

References 42 publications

Endogenous search, price dispersion, and welfare

Endogenous search, price dispersion, and welfare

Self-confirming price dispersion in monetary economies

Modeling Money and Credit: The New Monetarist View

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