Essays on search, money and endogenous inside assets

Three related models of search and money are presented. The aim is to gain insights about the equilibrium behavior of models in which money facilitates trade by aiding to overcome frictions inherent to the exchange process. The first model focuses on endogenous financial structure in the presence of search frictions and bargaining. Markets for inside assets may or may not open in equilibrium, depending on the stock of money. When inside assets emerge, they are generated endogenously by contracts. Rates of return associated with these assets depend on the stock of money which also affects prices, allocations and welfare. Market outcomes differ from planning outcomes and concave economies with risk aversion behave similarly to linear economies in equilibrium. The second model focuses on the role of maturities in forward contracts. Maturities are associated with deterministic gestation lags in the arrival of finished products and they affect forward contracts in two ways. First, they determine whether or not forward contracts are struck. Second, if forward contracts are struck, implied rates of return on forward contracts (contracting terms) depend on maturity. The third model breaks the link between the stock of money and the distribution of buyers and sellers in the market by considering divisible money. This permits discussion of purely monetary effects, on the price level and output, of variations in the money stock across economies. Because of externalities and self-validating beliefs, many distributions of money holdings, and therefore price levels, are consistent with equilibrium. In the long run money has no effect on real output or welfare. The only effect of money is on prices.