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A search theory of money and commerce with Neoclassical production
Faig, Miquel
Universitat Pompeu Fabra. Departament d'Economia i Empresa
This paper advances a highly tractable model with search theoretic foundations for money and neoclassical growth. In the model, manufacturingand commerce are distinct and separate activities. In manufacturing,goods are efficiently produced combining capital and labor. In commerce,goods are exchanged in bilateral meetings. The model is applied to studythe effects of inßation on capital accumulation and welfare. With realisticparameters, inflation has large negative effects on welfare even though itraises capital and output. In contrast, with cash-in-advance, a deviceinformally motivated with bilateral trading, inflation depresses capitaland output and has a negligible effect on welfare.
Macroeconomics and International Economics
neoclassical production
capital accumulation
optimum quantity of money
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