The Phillips curve in a matching model

Tai-Wei Hu, Neil Wallace

Research output: Working paper

Abstract

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 languageEnglish (US)
Number of pages26
StatePublished - Oct 19 2015

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