A Dynamic Equilibrium Model of Search, Bargaining, and Money

Abstract

This paper considers dynamic equilibria in a model with random matching, strategic bargaining, and money. Equilibrium in the bargaining game is characterized in terms of a simple differential equation. When we embed this characterization into the monetary economy, the model can generate outcomes such as limit cycles that never arise if one imposes a myopic Nash bargaining solution, as has been done in the past.Journal of Economic LiteratureClassification Numbers: C78, D83, E31. © 1998 Academic Press.