A search-theoretic approach to monetary economics

Abstract

The essential function of money is its role as a medium of exchange. The authors formalize this idea using a search-theoretic equilibrium model of the exchange process that captures the "double coincidence of wants problem" with pure barter. One advantage of the framework described here is that it is very tractable. The authors also show that the model can be used to addre ss some substantive issues in monetary economics, including the potenti al welfare-enhancing role of money, the interaction between specializat ion and monetary exchange, and the possibility of equilibria with multip le fiat currencies. Copyright 1993 by American Economic Association.

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