We develop a model of decentralized monetary exchange that can be used to examine the distributional effects of inflation across heterogeneous agents who have private information. The private information can be about the productivity, preferences, or money holdings of the agents. Matching is multilateral and each seller is visited by a stochastic number of buyers. The good is allocated according a second-price auction in money. In equilibrium, homogeneous buyers hold different amounts of money leading to price dispersion. We find the closed-form solution for the distribution of money holdings. Entry of sellers is suboptimal except at the Friedman rule. When agents differ in productivity, inflation acts as a regressive tax, at least for moderate rates of money growth.
A Model of Money with Multilateral Matching
Journal of Monetary Economics, 2008, Vol. 55, pp. 1054-1066. With M. Galenianos.
We characterize price dispersion and welfare in a monetary model with private information: inflation is regressive even though the rich hold more money.
Econometrica, 2015, Vol 83 (5), 1849-1875. With K. Kim. [online appendix] We introduce cheap-talk into a market game and study if the equilibrium can replicate the constraint efficient allocation under (reserve) price posting. Go to paper
Econometrica, 2019 87(4): 1081-1113. With J. Greenwood, C. Santos and M. Tertilt A calibrated equilibrium search model of an HIV/AIDS epidemic is developed to analyze the direct impact and the behavioral adjustment to policies. Go to paper
International Economic Review, 2011, 52(1), pp 85-104. With M. Galenianos and G. Virag. [technical appendix] In directed search with a finite population, minimum wages improve employment but reduce output and efficiency, and reverse for unemployment benefits. Go to paper
Journal of Economic Theory, 2010/145, 1354-1385. With Jan Eeckhout. Search affects competing mechanisms: if meetings with low types reduce those of high types, price posting and market separation replace auctions. Go to paper
American Economic Review P&P, 2017, 107(5): 158–162 With J. Greenwood, C. Santos & M. Tertilt. In a quantitative equilibrium model of sexual behavior and HIV/AIDS transmission we study policies that encourage long-term partnerships. Go to paper