WP Global Economy 2014.10.08
In the Lagos-Wright model of money, monetary frictions alone cannot be a source of equilibrium multiplicity. However, the conclusion depends on the assumption that the agents always enter the centralized market after completing a transaction in the decentralized markets. In this paper, we investigate a monetary model in which the centralized market opens once, but the decentralized markets open twice in each period. We show that as the seller's money balances affect the buyer's problem in the first decentralized market, there may be multiple stationary equilibria.