The distribution of money and prices in search equilibrium

This dissertation analyzes the potential distributional effects of monetary policy. I generalize existing search-theoretic models of monetary exchange by allowing individuals to hold any nonnegative amount of money. Buyers and sellers bargain over both the amount of money and the quantity of goods to be exchanged in bilateral meetings, determining endogenously the distributions of money holdings and of prices. I develop and use numerical methods to characterize equilibria and to address a variety of issues in monetary theory and policy. For example, I show that the level of money supply is neutral in the long run, and also in the short run if changes in the money supply are accomplished via proportional transfers. Also, changes in the rate of growth of the money supply have no real effects if new money is injected by proportional transfers, but this is not the case if it is injected by some other means. such as lump sum transfers. Within the class of lump sum transfers, an increase of the rate of monetary expansion tends to decrease the dispersion of money holdings and prices and to improve welfare when inflation is low; but when inflation is high enough, the opposite effects can occur