Thick Market Externality and Concentration of Money

Abstract

A thick market external effect is applied to a trading post model of \( N\geq 3 \) commodities with transaction costs and distinct bid and ask prices. We state and prove an existence theorem for general equilibrium with external effects in the trading post model. Media of exchange occur endogenously as liquid commodities, characterized by a narrow bid/ask price spread. The thick market externality can lead to concentration of the endogenously determined media of exchange towards an equilibrium with a single medium. In a class of examples, we show that if the households have sufficiently heterogeneous tastes relative to the size of the economy, the monetary equilibrium leads to higher consumption than the barter equilibrium.

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Pietro Emilio Spini
Pietro Emilio Spini
PhD candidate in Economics

Welcome to my personal page! I am a PhD Candidate in Economics at the University of California, San Diego. My research focus is in Econometrics and Policy Evaluation. I study how to robustify causal inference procedures against data limitations that typically arise in applied economic research. I will be joining the University of Bristol as a Lecturer (Assistant professor) at the end of the Summer 2022.

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