Abstract
In this chapter, the question of whether the theories of Kiyotaki and Wright substantially contributed to the development of a new monetary theory in the vein of search theory is discussed. The following observations can be made: (i) Kiyotaki and Wright succeed in proving that the circulation of money improves economic welfare. However, this contribution is nothing more than that of the overlapping generations model developed by Samuelson and Lucas; and (ii) the equilibrium of a barter economy remains in the Kiyotaki and Wright model, which is an extension of the Diamond model. Based on this analysis, the present exercise rigorously proves that money never circulates in their model.
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References
Diamond P (1982) Aggregate-demand management in search equilibrium. J Polit Econ 90:881–894
Kiyotaki N, Wright R (1989) On money as a medium of exchange. J Polit Econ 97:927–954
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Lucas R Jr (1972) Expectations and the neutrality of money. J Econ Theory 4:103–124
Samuelson P (1958) An exact consumption loan model of interest with or without the contrivance of money. J Polit Econ 66:467–482
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Otaki, M. (2015). Does the Search Model Succeed in Describing a Monetary Economy?. In: Keynesian Economics and Price Theory. Advances in Japanese Business and Economics, vol 7. Springer, Tokyo. https://doi.org/10.1007/978-4-431-55345-8_15
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DOI: https://doi.org/10.1007/978-4-431-55345-8_15
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