Search, Money and Capital: A Neoclassical Dichotomy

S. Boragan Aruoba and Randall D. Wright , Journal of Money Credit and Banking 35(6) , 1085-1105 , December 2003.

Recent work has reduced the gap between search-based monetary theory and mainstream macroeconomics by incorporating into the search model some centralized markets as well as some decentralized markets where money is essential. This paper takes a further step toward this integration by introducing labor, capital, and neoclassical firms. The resulting framework nests a search-theoretic monetary model and a standard neoclassical growth model as special cases. Perhaps surprisingly, it also exhibits a dichotomy: one can determine the equilibrium path for the value of money independent of the paths of consumption, investment, and employment in the centralized market.

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