Money and the Gains from Trade

Zurich IEER Working Paper No. 100

41 Pages Posted: 6 Feb 2002

See all articles by Aleksander Berentsen

Aleksander Berentsen

University of Basel - Faculty of Business and Economics; CESifo (Center for Economic Studies and Ifo Institute)

Guillaume Rocheteau

Federal Reserve Bank of Cleveland; National University of Singapore (NUS)

Date Written: January 2002

Abstract

This paper studies the role of money in environments where in each meeting there is a double coincidence of real wants. Traders who meet at random finance their purchases through current production, the sale of divisible money or both. It is shown that in the absence of valued money if traders have asymmetric tastes for each other's good, they produce and exchange socially inefficient quantities. With valued money, however, traders exchange efficient quantities if the asymmetry of tastes is not too large. It is shown that the gains from trade in the monetary economy are strictly greater than those in the corresponding barter economy, that the Friedman rule holds, and that the allocation of resources in the monetary economy converges to the allocation in the barter economy as the growth rate of the money supply is increased.

Keywords: Money, Double Coincidence, Bargaining, Search

JEL Classification: E00, D83, E52

Suggested Citation

Berentsen, Aleksander and Rocheteau, Guillaume, Money and the Gains from Trade (January 2002). Zurich IEER Working Paper No. 100, Available at SSRN: https://ssrn.com/abstract=299499 or http://dx.doi.org/10.2139/ssrn.299499

Aleksander Berentsen (Contact Author)

University of Basel - Faculty of Business and Economics ( email )

Petersplatz 1
Basel, 4001
Switzerland

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Guillaume Rocheteau

Federal Reserve Bank of Cleveland ( email )

PO Box 6387
Cleveland, OH 44101-1387
United States

National University of Singapore (NUS) ( email )

1E Kent Ridge Road
NUHS Tower Block Level 7
Singapore, 119228
Singapore