Essays on search, money, and unemployment

The paper constructs a version of search-theoretic model of money, which makes it possible to consider inflation, growth, and unemployment in a unified framework. There are two types of agents, workers and entrepreneurs. Both the labor and goods markets are so highly differentiated that it is hard to find a double coincidence of wants. Money endogenously emerges as the medium of exchange to alleviate the transaction problem. Money makes trades possible to occur in an environment where barter is not affordable thanks to the high production cost. The prices of the products and the workers\u27 wages are determined by the bilateral bargaining between the agents. The effects of the aggregate money supply on prices, wages, and income sharing between workers and entrepreneurs depend on how we model the bargaining process. With the divisible money in the household model, we can consider the effects of constant money growth on inflation, output, and unemployment on the steady-state growth path. An increase in the money growth rate accelerates inflation, which reduces the bargaining power of the workers as well as the workers\u27 income share. Then the workers tend to reduce labor supply and assign more hours to shopping, which reduces the productivity of capital and the output growth rate. Inflation affects unemployment through the entrepreneurs\u27 entry. There are two factors which affect the entrepreneurs\u27 welfare. The higher the output growth rate, the higher the entrepreneurs\u27 share, the higher the entrepreneurs\u27 welfare. If money growth reduces the output growth so much to reduce the entrepreneurs\u27 welfare, there is a reduction in the population of the entrepreneurs, which causes a rise in the unemployment rate