We examine two monetary models with periodic interactions in centralized and decentralized markets: the cash-in-advance model and the model in Lagos and Wright (2005). Given conformity of preferences, technologies and shocks, both models reduce to a single difference equation. In stationary equilibrium, such equations coincide when the price distortion present in one model, due to Nash bargaining, is replicated in the other using a tax on cash revenues. In that case, the quantitative implications for the welfare cost of inflation in each model are also comparable. Differences in the model’s performance reduce to differences in the pricing mechanism assumed to govern those transactions that must be settled with the exchange of cash.
Camera, G. and Chen, Y. (2013). Two monetary models with alternating markets. ESI Working Paper 13-25. Retrieved from http://digitalcommons.chapman.edu/esi_working_papers/35