Why Ten $1’s Are Not Treated as a $10.

Paper number: 13/10

Paper date: 30 October 2013

Year: 2013

Paper Category: Discussion Paper

Authors

Pidong Huang and Yoske Igarashi

Abstract

We study the stability of monetary steady states in a random matching model of money where money is indivisible, the bound on individual money holding is finite, and the trading protocol is buyer take-it-or-leave-it offers. The class of steady states we study have a non-full-support money-holding distribution and are constructed from the steady states of Zhu (2003). We show that no equilibrium path converges to those steady states if the initial distribution has a different support.

Keywords: random matching model; monetary steady state; instability; Zhu (2003).
JEL classification: C62, C78, E40

Why Ten $1’s Are Not Treated as a $10. Why Ten $1’s Are Not Treated as a $10.