The New Palgrave Dictionary of Economics

Living Edition
| Editors: Palgrave Macmillan

Search-and-Matching Models of Monetary Exchange

  • Randall Wright
Living reference work entry


We review a class of equilibrium search (matching) models that can be used to study the trading process and develop a theory of money as a medium of exchange. Developing such a theory is one of the longest-standing issues in economics, and search-based models provide a natural framework in which to formalize venerable stories about money facilitating trade by avoiding the double coincidence of wants problem in pure barter. The approach provides a compelling microfoundation for monetary theory: it is based on sound economic thinking going back to the classical economists, brought up to date with modern and rigorous methods.


Bargaining Barter Bellman equation Commodity money Fiat money Matching Microfoundations Money Multiple equilibria Overlapping generations models Search-and-matching models of monetary exchange Trigger strategies 

JEL Classifications

D4; D10 
This is a preview of subscription content, log in to check access.


  1. Aiyagari, S.R., and N. Wallace. 1991. Existence of steady states with positive consumption in the Kiyotaki Wright model. Review of Economic Studies 58: 901–916.CrossRefGoogle Scholar
  2. Aiyagari, S.R., and N. Wallace. 1992. Fiat money in the Kiyotaki Wright model. Economic Theory 2: 447–464.CrossRefGoogle Scholar
  3. Aliprantis, C.D., G. Camera, and D. Puzzello. 2007. Anonymous markets and monetary trading. Journal of Monetary Economics 54: 1905–1928.CrossRefGoogle Scholar
  4. Araujo, L. 2004. Social norms and money. Journal of Monetary Economics 51: 241–256.CrossRefGoogle Scholar
  5. Camera, G., and D. Corbae. 1999. Monetary patterns of exchange with search. International Economic Review 40: 985–1008.CrossRefGoogle Scholar
  6. Chiu, J., and M. Molico. 2006. Liquidity, redistribution and the welfare cost of inflation. Mimeo: Bank of Canada.Google Scholar
  7. Corbae, D., T. Temzilides, and R. Wright. 2003. Directed matching and monetary exchange. Econometrica 71: 731–756.CrossRefGoogle Scholar
  8. Curtis, E., and R. Wright. 2004. Price setting, price dispersion and the value of money, or the law of two prices. Journal of Monetary Economics 51: 1599–1621.CrossRefGoogle Scholar
  9. Diamond, P.A. 1982. Aggregate demand management in search equilibrium. Journal of Political Economy 90: 881–894.CrossRefGoogle Scholar
  10. Diamond, P.A. 1984. Money in search equilibrium. Econometrica 52: 1–20.CrossRefGoogle Scholar
  11. Diamond, P.A., and D. Fudenberg. 1989. Rational expectations business cycles in search equilibrium. Journal of Political Economy 97: 606–619.CrossRefGoogle Scholar
  12. Duffy, J., and J. Ochs. 1999. Emergence of money as a medium of exchange: An experimental study. American Economic Review 89: 847–877.CrossRefGoogle Scholar
  13. Green, E., and R. Zhou. 1998. A rudimentary model of search with divisible money and prices. Journal of Economic Theory 81: 252–271.CrossRefGoogle Scholar
  14. Jones, R. 1976. The origin and development of media exchange. Journal of Political Economy 84: 757–775.CrossRefGoogle Scholar
  15. Julien, B., J. Kennes, and I. King. 2007. Bidding for money. Journal of Economic Theory 38: 174.Google Scholar
  16. Kehoe, T.J., N. Kiyotaki, and R. Wright. 1993. More on money as a medium of exchange. Economic Theory 3: 297–314.CrossRefGoogle Scholar
  17. Kiyotaki, N., and R. Wright. 1989. On money as a medium of exchange. Journal of Political Economy 97: 927–954.CrossRefGoogle Scholar
  18. Kiyotaki, N., and R. Wright. 1991. A contribution to the pure theory of money. Journal of Economic Theory 53: 215–235.CrossRefGoogle Scholar
  19. Kiyotaki, N., and R. Wright. 1993. A search theoretic approach to monetary economics. American Economic Review 83: 63–77.Google Scholar
  20. Kocherlakota, N. 1998. Money is memory. Journal of Economic Theory 81: 232–251.CrossRefGoogle Scholar
  21. Kocherlakota, N., and N. Wallace. 1998. Optimal allocations with incomplete record keeping and no commitment. Journal of Economic Theory 81: 272–289.CrossRefGoogle Scholar
  22. Lagos, R., and R. Wright. 2005. A unified framework for monetary theory and policy analysis. Journal of Political Economy 113: 463–484.CrossRefGoogle Scholar
  23. Marimon, R., E.R. McGrattan, and T.J. Sargent. 1990. Money as a medium of exchange in an economy with artificially intelligent agents. Journal of Economic Dynamics and Control 14: 329–373.CrossRefGoogle Scholar
  24. Molico, M. 2006. The distribution of money and prices in search equilibrium. International Economic Review 47: 701–722.CrossRefGoogle Scholar
  25. Ostroy, J.M., and R.M. Starr. 1990. The transaction role of money. In Handbook of monetary economics, ed. B. Friedman and F. Hahn. Amsterdam: North-Holland.Google Scholar
  26. Rupert, P., M. Schindler, A. Shevchenko, and R. Wright. 2000. The search-theoretic approach to monetary economics: A primer. Federal Reserve Bank of Cleveland Review 36: 10–28.Google Scholar
  27. Rupert, P., M. Schindler, and R. Wright. 2001. Generalized search theoretic model of monetary exchange. Journal of Monetary Economics 48: 605–622.CrossRefGoogle Scholar
  28. Shevchenko, A., and R. Wright. 2004. A simple model of money with heterogeneous agents and partial acceptability. Economic Theory 24: 877–885.CrossRefGoogle Scholar
  29. Shi, S. 1995. Money and prices: A model of search and bargaining. Journal of Economic Theory 67: 467–496.CrossRefGoogle Scholar
  30. Shi, S. 1997. A divisible search model of fiat money. Econometrica 65: 75–102.CrossRefGoogle Scholar
  31. Shi, S. 2006. Viewpoint: A microfoundation of monetary economics. Canadian Journal of Economics 39: 643–688.CrossRefGoogle Scholar
  32. Starr, R.M. 1990. General equilibrium models of monetary economics. New York: Academic Press.Google Scholar
  33. Trejos, A., and R. Wright. 1995. Search, bargaining, money and prices. Journal of Political Economy 103: 118–141.CrossRefGoogle Scholar
  34. Wallace, N. 1980. The overlapping generations model of fiat money. In Models of monetary economies, ed. J.H. Kareken and N. Wallace. Minneapolis: Federal Reserve Bank of Minneapolis.Google Scholar
  35. Wallace, N. 2001. Whither monetary economics. International Economic Review 42: 847–870.CrossRefGoogle Scholar
  36. Wright, R. 1995. Search, evolution, and money. Journal of Economic Dynamics and Control 19: 181–206.CrossRefGoogle Scholar

Copyright information

© The Author(s) 2008

Authors and Affiliations

  • Randall Wright
    • 1
  1. 1.