A RUDIMENTARY RANDOM-MATCHING MODEL WITH DIVISIBLE MONEY AND PRICES

We consider a version of Kiyotaki and Wright's monetary search model i n which agents can hold arbitrary amounts of divisible money. A contin uum of stationary equilibria, indexed by the aggregate real money stoc k, exists with all trading occurring at a single price. There is alway s a maximum level of the real money stock consistent with existence of such an equilibrium. In the limit as trading becomes faster relative to discounting, any real money stock becomes feasible in such an equil ibrium. In contrast to the original Kiyotaki-Wright model, higher equi librium real money stocks unambiguously correspond to higher welfare i n this costless-production environment. (C) 1998 Academic Press.