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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 28, No. 4, pp.389-414
ISSN: 1225-0279 (Print)
Print publication date 30 Nov 2015
Received 04 Sep 2014 Revised 02 Oct 2015 Accepted 10 Nov 2015

A Stability Analysis of a Multiple Denomination Equilibrium

Pidong Huang
Assistant Professor, Department of Economics, Korea University, Anam-dong, Seongbuk-gu, Seoul 136-701, Korea, Tel: 82-2-3290-5133, Fax: 82-2-926-3601 pidonghuang@korea.kr.ac

JEL Classification: C62, C78, E40

Abstract

We consider existence and stability in a simple version of Lee et al. (2005). For a sufficiently large discount factor, a steady state of full ― support wealth distribution and pure strategy exists, whereas for an intermediate discount factor, a steady state of mixed strategy exists. Both steady states are locally stable and determinate. All denominations are circulated in the mixed-strategy steady state, whereas larger denominations are not held in the other steady state. We also show that nonfull-support steady states exist, and are stable and indeterminate. This finding is in sharp contrast to that of Huang, and Igarashi (2014), which show instability of nonfull-support steady states in Lee et al. (2005)

Keywords:

Random matching model, Carrying cost, Denomination, Instability, Determinacy

Acknowledgments

We wish to thank the anonymous referee whose comments and suggestions were helpful in improving the quality of the paper. This paper is supported by a Korea University Grant (K1427101).

References

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