Shocks to the stock of money that are observed with a one-period lag are introduced into the random matching model of money of Shi (1995) and Trejos-Wright (1995), a model designed to show that money helps facilitate trade. The shock follows a finite-state Markov process. It is shown that if the shock is almost perfectly persistent, then the equilibrium gives rise to a Phillips curve, a positive association between the current stock of money and the level of per capita output. Moreover, that association is stronger than in the same model without an information lag.
|Original language||English (US)|
|Number of pages||26|
|State||Published - Oct 19 2015|