Essays of search-theoretic models of money

by Wang, Weimin.

The dissertation consists of three essays on search monetary economy. The first essa? is entitled " Search. Information and Policy Analysis in a Monetary Economy with Uncenainry in Commodity Quality " . Ordinarily. one would expect more higher qualih goods ~x-ouIdbe produced when buyers obtain more information about the tnie quahies of the goods the. are going to buy. In this essay, 1 develop a search model to study the effects of information acquisition on quality choice and welfare. Surprisingly. there may exist inefficiency associatsd with decentralized information acquisition behavior. The equilibrium 1-alueof the probability of producing high quality goods may be lower when buyers have more information on goods quality. I also conduct a policy analysis by introducing governments into the econorny as a b~g agent. it is found that certain commitment among government agents can lead the econom). to a desrable equilibnum and Save the resource spending on acquiring information. The second essay is entitled "Inventory. Search and the VariabiIity in the Velociry of Money". A dynamic equilibrium model is developed in this essay to examine the vanability in the velociry of money. The prominent feature of the model is the presence of costly search in both goods and labor markets. Incorporating money growth shocks and productivity shocks. the model 1s calibrated to the US rime senes data. In contrast to other dynamic equilibrium models. e.g.. Hodrick et al. (1991), the model generates sufficient vanability of the velocity of money that 1s ccmparable to the sample value. This success stems largely from a novel propagation mechanism and. more broadly, fiom non-WaIrasian exchange process of the model. In particular. monetary shocks create an inventory effects that propagates the shock into output and makes the velocity of money Vary. The model also generates reasonable correlations among variables. The third essay is entitled " Search. inflation Tax. International Currency and Currency Exchange " . In this essay I introduce the govemrnent's budgetan. policy. which allows the monetary authority to extract seigniorage revenue fiom agents holding the national cwrency. lnto a nvo-country-two cmency mode1 of the world economy to investigate the rmpact of the polit?. (the risk of confiscation cm be regarded as the inflation tax associated with holding the currenc') on the circulation areas of both currencies and welfare levels of both countnes. Findings In this essay are intuitive. The country with its national currency accepted universally can takr this as an advantage. The govement of this country can raise its national welfare by moderatel>.increasing the inflation tau on its national currency. Meanwhile, the country with its national currcnclP accepted on1 y dornestically is in a passive position in the worla economy. The government of this country has to keep the inflation tax Iow enough to maintain the domestic circulation of its national currency. Direct currency exchange rnay occur when governrnent agents meet domestic agents more ofien than meet foreign agents. Agents hold~ng their national currencirs may nade their holdings for foreign currencies to avoid higher risk of confiscation. This rnechanism 1s different from those in the literature. Co-Authorship