Replication of "The Distribution of Money and Prices in Search Equilibrium" by Miguel Molico (2006), International Economic Review


I was wondering if there is interest in replication or even a lecture on “The Distribution of Money and Prices in Search Equilibrium” by Miguel Molico (2006)? This is the first work that solves for the endogenous distribution of money and prices under the search model of monetary exchange and analyzes its consequences for inflation. The output and welfare effects of inflation depend crucially on how it is administered in terms of proportional vs. lump-sum transfers and its level.

This application is perfectly suitable for QuantEcon and is somewhat more challenging to solve than Aiyagari (1994) because individuals’ decision to hold money balances depends on the wealth distribution of their potential trading partners.

I can hopefully do the replication myself eventually, but it seems plausible that at least one existing user would have done it by now.


This sounds like a good idea, thanks @msilva913. I’ll ask around to see if anyone has done it / wants to do it.

G’day @msilva913 and @john.stachurski:

Yes, I think this would be of interest to the community. Molico’s problem was a difficult one because of the bargaining solution. Each ex-ante agent, when considering the expected payoff in his Bellman equation from holding money, needs to conjecture the equilibrium distribution of other buyers and sellers in general; or just that of buyers if one focuses on take it or leave it bargaining solutions. Would be nice to see such examples that depart significantly from the more neoclassical/Walrasian backbone of Bewley-Aiyagari-Krusell-Smith on Quantecon.

(Aside: my coauthors and I think a more elegant and computationally more accurate approach is to use directed search which may make the search equilibrium computation even more tractable – e.g., like this one here: It’s a brute force solution method in Molico’s case to approximate the distribution.)