Abstract
This article examines an environment where money is essential and agents exchange in perfectly competitive, Walrasian markets. Agents consume and produce a homogeneous good, but hold money to purchase consumption in the event of a relatively low productivity shock. A Walrasian market delivers a nondegenerate distribution of money holdings across agents and avoids some of the computational difficulties associated with the market assumption of bilateral bargaining common to search‐theoretic environments. The model is calibrated to long‐run U.S. velocity, and the welfare costs of inflation are assessed for variable buyer–seller ratios and persistent states of buying and selling.
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