We study optimal monetary stabilization policy in a DSGE model with microfounded money demand. A search externality creates ‘congestion’ which causes aggregate output to be inefficient. Due to the informational frictions that give rise to money, households are unable to perfectly insure...

Workers are embedded within a network of social relationships and can communicate through word-of-mouth. They can find a job through either formal agencies or personal contacts. From this micro scenario, we derive an aggregate matching function that has the standard properties but fails to be...