A DIVISIBLE SEARCH MODEL OF FIAT MONEY

This paper extends the Kiyotaki-Wright search model of hat money to al low for divisible money and goods. The extension allows me to examine the standard issues in monetary economics, such as the neutrality and superneutrality of money, by severing the artificial link in the Kiyot aki-Wright model between the money supply and the number of money hold ers. It is shown that money is neutral, but not superneutral. Money gr owth generates a trading opportunity effect: it changes the fraction o f different agents in the economy and hence changes the probability wi th which agents have a successful match. In addition, money growth has a negative effect on the real money balance that is familiar in Walra sian monetary models. The balance of the two effects can imply a posit ive optimal money growth rate.