MONEY AND PRICES - A MODEL OF SEARCH AND BARGAINING

This paper makes commodities divisible and incorporates bargaining int o the search-theoretic model of money to determine the purchasing powe r of money (or price). It is shown that two monetary equilibria always coexist where fiat money is universally accepted. The two equilibria differ in price, output, welfare, and the velocity of money. Sunspot m onetary equilibria exist in which money is universally accepted in all states of the economy. Multiplicity has novel implications on the eff ectiveness of currency substitution and exchange market intervention. (C) 1995 Academic Press, Inc.