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On the Friedman Rule in search models with divisible money

Berentsen, Aleksander and Rocheteau, Guillaume. (2003) On the Friedman Rule in search models with divisible money. Contributions to macroeconomics, Vol. 3. p. 1121.

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Official URL: http://edoc.unibas.ch/dok/A5250636

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Abstract

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 rule maximizes the purchasing power of money, it fails to generate the first-best allocation of resources unless buyers have all the bargaining power.
Faculties and Departments:06 Faculty of Business and Economics > Departement Wirtschaftswissenschaften > Professuren Wirtschaftswissenschaften > Wirtschaftstheorie (Berentsen)
UniBasel Contributors:Berentsen, Aleksander
Item Type:Article, refereed
Article Subtype:Research Article
Bibsysno:Link to catalogue
Publisher:De Gruyter
Note:Publication type according to Uni Basel Research Database: Journal article
Last Modified:22 Mar 2012 14:31
Deposited On:22 Mar 2012 14:18

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