A New Technique for Proving the Existence of Monetary Equilibria in Matching Models with Divisible Money

Abstract

This paper develops a new technique for proving the existence of monetary equilibria in money search models. In money search models with divisible money, the set of equilibria, if it exists, is at least one-dimensional. We develop a method to prove the existence of such a set in a fairly simple way. That is, we first find an endpoint of the set of equilibria and then we prove the existence of a continuum of the set of equilibria from this endpoint. Solving for these equilibria is complicated otherwise than using our method. Thus, our technique is simple but very powerful. Further, we consider a rather complicated bargaining procedure that allows us to prove the existence of equilibria in money search model with perfectly divisible goods and money.