Publication Type
Journal Article
Version
submittedVersion
Publication Date
9-2011
Abstract
We investigate the dual role of money as a self-insurance device and a means of payment when perfect risk sharing is not possible, and when the two roles of money are disentangled. We use a variant of Lagos–Wright (2005) where agents face a risk in the centralized market (CM): in the decentralized market (DM) money’s main role is as a means of payment, while in the CM it is as a self-insurance device. We show that state-contingent inflation rates can improve agents’ ability to self-insure in the CM, thereby improving the terms of trade in the DM. We then characterize the optimal monetary policy.
Keywords
risk sharing, monetary policy, bargaining.
Discipline
Economic Policy | Finance
Research Areas
Macroeconomics
Publication
Journal of Money, Credit and Banking
Volume
43
Issue
7
First Page
419
Last Page
442
ISSN
0022-2879
Identifier
10.1111/j.1538-4616.2011.00444.x
Publisher
Wiley
Citation
JACQUET, Nicolas L. and TAN, Serene.
Money, bargaining, and risk sharing. (2011). Journal of Money, Credit and Banking. 43, (7), 419-442.
Available at: https://ink.library.smu.edu.sg/soe_research/2170
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1111/j.1538-4616.2011.00444.x