Alberto Trejos

Search, Bargaining, Money, and Prices

The goal of this paper is to extend existing search-theoretic models of fiat money, which until now have assumed that the price level is exogenous, by explicitly incorporating bilateral bargaining. This allows us to determine the price level endogenously and leads to additional insights concerning the role of money. For example, we find that monetary equilibria are generally inefficient in the sense that output and prices differ from the solution to a social planners problem, although the difference can become small as the discount rate or search friction vanishes. We also find that there exist nonstationary inflationary equilibria.

Search, Bargaining, Money, and Prices Under Private Information

This paper presents a model of money and search where bargaining determines prices and the quality of goods is private information. It studies how a lemons problem affects the purchasing power of money. There are multiple, Pareto-ranked equilibria. The superior equilibrium, where no lemons are produced, exists even if information about quality is relatively scarce. In other equilibria, there is price dispersion, and uninformed buyers pay higher prices than informed buyers for all goods. Taxing money balances (a proxy for inflation) makes buyers less selective, thus reducing the average quality of supply and the premium paid for known quality. Copyright 1999 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Search, Bargaining, Money and Prices: Recent Results and Policy Implications

Recently, the search-theoretic approach to monetary economics has been generalized to incorporate bilateral bargaining theory in order to determine the purchasing power of money endogenously (the first-generation of models in this literature essentially assume that prices are fixed exogenously). The authors review these results. They then use the model to address a variety of issues in monetary economics. The authors analyze the relationships between monetary and real variables, including velocity, output, and welfare. They also discuss several aspects of monetary policy, including the effects of randomness in the money supply process. Copyright 1993 by Ohio State University Press.

Incentives to produce quality and the liquidity of money

SummaryI study a version of the Williamson-Wright (1994) model that results from ruling out direct barter. Although one can no longer argue that the value of money comes exclusively from private information, one can use the simplified model to address a variety of other issues. In particular, one can characterize analytically the set of equilibria and their properties. One can also analyze the trade-off between providing liquidity to facilitate trade and providing incentives to produce high quality, and address some other issues related to policy and welfare, including the effects of inflation on the incentives to produce high quality.

Search-based models of money and finance: An integrated approach

Many applications in monetary economics of search-and-bargaining theory use Shi–Trejos–Wright, hereafter STW; many applications in finance use Duffie–Gârleanu–Pedersen, hereafter DGP. These models share several features, and both concern liquidity, yet they also differ: in STW agents use assets as payment instruments when trading goods; in DGP they pay with goods (or transferable utility) when trading assets. We integrate the two. This clarifies connections between the literatures, and generates novel insights. Several new results are provided for the baseline STW and DGP models, while the integrated structure generates even more interesting outcomes, including endogenous transactions patterns and belief-based dynamics.

A new suggestion for simplifying the theory of money

We propose a new search-theoretic model of monetary exchange with indivisible assets, based on price posting instead of bargaining, and incorporating noisy search. This yields some familiar results, plus a lot more. The model admits multiple steady states due to the self-referential nature of liquidity. It admits cyclic, chaotic and stochastic equilibria, and compared to bargaining versions, the dynamics are more general and have better microfoundations. It generates price dispersion, with interesting efficiency implications, plus sticky prices and rational inattention. Parametric examples yield closed-form solutions. Based on these results, we suggest this should become a benchmark model in monetary economics.

Two to Tango: Public-Private Collaboration for Productive Development Policies

It takes two to tango. Strong public-private collaboration is key for discovering and implementing effective productive development policies to bring out the best in existing economic activities and to foster economic transformation. The 25 Latin American cases analyzed in this volume show how and why many public and private partners are dancing smoothly while others stumble or follow different drummers. This book is a resource for designing institutions to make public-private interaction a win-win strategy.

Building Public Capabilities for Productive Development Policies: Costa Rican Case Studies

This paper explores the development of public sector capabilities for Productive Development Policies in Costa Rica through four case studies of successful experiences, with less successful cases presented as counterfactuals. To some extent the paper tests the Technical, Organizational and Political Capabilities (TOP) conceptual framework of Cornick (2013), suggesting adjustments and extensions of that framework. Strong commonalities are found among the cases, notably high technical and political capabilities. All cases likewise involve well-managed organizations, but identifying organizational capabilities proved difficult. While the TOP Capabilities framework may be useful for understanding institutional performance, it has three major weaknesses: i) organizational capabilities are not clearly defined; ii) it does not provide tools for identifying and measuring capabilities ties independently of institutional performance; and iii) it needs to be integrated into a more general framework that takes into account the interactions among the political economy, the Policy Making Process, the institutional setup and TOP capabilities.