In this paper we study the inefficiencies of the monetary equilibrium and optimal monetary policies in a search economy. We show that the same frictions that give fiat money a positive value generate an inefficient quantity of goods in each trade and an inefficient number of trades (or search...

This paper addresses why it is beneficial for a society to restrict the use of nominal bonds as a means of payment for goods. The model has a centralized asset market and a decentralized goods market. Individuals face matching shocks that affect the marginal utility of consumption, but they...