Convergence to Monetary Equilibrium in Search Model
| Authors | |
|---|---|
| Year of publication | 2014 |
| Type | Article in Proceedings |
| Conference | 32nd International Conference Mathematical Methods in Economics Conference Proceedings |
| MU Faculty or unit | |
| Citation | |
| Web | http://www.mme2014.upol.cz/downloads/MME_2014_Proceedings.pdf |
| Field | Economy |
| Keywords | monetary equilibrium; search model; convergence; agent-based model |
| Description | Monetary equilibria are welfare superior comparing to barter equilibria in models with decentralized trade, such as search models. However, monetary equilibrium arises only if agents share the belief that money is accepted by other agents. The paper explores the question whether agents can spontaneously coordinate on such a belief in case of at money. Formation of monetary equilibrium is studied in the monetary search model, which is similar to Kiyotaki-Wright model. The model is characterized by decentralized trading where agents have to decide whether to accept at money or not. Each agent has some belief about money acceptability and chooses optimal action with respect to this belief. The belief is updated after each trade. To allow for non-equilibrium dynamics the model is solved by means of agent based simulation. The paper shows what conditions have to be met in order for monetary equilibrium to arise. The efects of network type, total number of agents in society and initial conditions on the acceptability of at money are examined. |
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