Author: Alessandro Mennuni (University of Southampton)
Paper number 1704
Abstract:
This paper introduces a macroeconomic framework where money emerges endogenously as a store of value because of a search friction in the goods market. With the novel microfoundation, monetary equilibria are robust to large amounts of credit. The model also implies a link between the value of money and the matching between the demand and supply of goods. As a result, the implications are different than those of existing models. In particular, the model offers an original interpretation of recessions which accounts for how monetary holdings and excess production capacity vary over the business cycle.