Federal Reserve Bank of Minneapolis
Research Department Staff Report 222
Revised January 1998
Individual and Aggregate Real Balances
in a Random-Matching Model
Ruilin Zhou*
Federal Reserve Bank of Minneapolis
and University of Pennsylvania
ABSTRACT
This paper investigates the characteristics of stationary single-price equilibrium in a monetary randommatching model where agents can hold an arbitrary amount of divisible money and where production is
costly. At such an equilibrium, agents’ money holdings are endogenously determined and uniformly
bounded. A refinement of weakly undominated strategies is argued to be necessary. It is shown that a
continuum of single-price equilibria indexed by the aggregate real-money balance exists if one such
equilibrium exists. Equilibria with different money-holdings upper bounds, hence different distributions,
but with identical aggregate real-money balances, can coexist.
*I thank Harold Cole, Dean Corbae, Ed Green, Neil Wallace, and Randall Wright for helpful conversations. The views
expressed herein are those of the author and not necessarily those of the Federal Reserve Bank of Minneapolis or
the Federal Reserve System.
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