The Adjustment of Prices to Monetary Shocks When Trade is Uncertain and Sequential

16/01/1994 |  Eden Beni

Abstract

Trade is both uncertain and sequential. Money surprises are not neutral because prices at the beginning of the

trading process cannot depend on its end. Unlike fixed price models, here sellers can change prices during trade.

Unlike Lucas (1972) , here there is no asymmetry in the information about the money supply. The price quoted by

individual sellers may adjust slowly to changes in the targeted money supply, but the distribution of quoted prices

adjusts perfectly to these changes and the real price distribution is independent of the anticipated rate of change

in the money supply.



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