Macroeconomic Dynamics



Note

ON RANDOM MATCHING, MONETARY EQUILIBRIA, AND SUNSPOTS


Huberto M. Ennis a1c1 1
a1 Federal Reserve Bank of Richmond

Abstract

We study comparative statics results for the steady-state monetary equilibria of a simple random matching model of money with endogenous prices and no extrinsic uncertainty. Some of the results appear counterintuitive (both when take-it-or-leave-it offer or when Nash–Rubinstein bargaining is used in the model). Consistency of the equilibrium expectations causes the partial equilibrium intuitions to be reversed. We then proceed to apply the new insights to the analysis of sunspot equilibria in these type of models of bilateral trade with money.


Key Words: Random Matching; Monetary Equilibria; Multiplicity; Comparative Statics; Sunspot Equilibrium.

Correspondence:
c1 Address correspondence to: Huberto M. Ennis, Research Department, Federal Reserve Bank of Richmond, P.O. Box 27622, Richmond, Virginia 23261, USA; e-mail: huberto.ennis@rich.frb.org.


Footnotes

1 I would like to thank Todd Keister and Karl Shell for helpful comments and encouragement. Luis Rivas, Ted Temzelides, Neil Wallace, an MD associate editor, and the participants at the Fall 1998 Cornell University-Penn State University Joint Macroeconomics Workshop also provided useful comments on an earlier draft. Any remaining errors are my own. The views expressed here do not represent those of the Federal Reserve Bank of Richmond or the Federal Reserve System.



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