This paper studies how government uses inflation tax to finance public goods affects the circulation of a national currency in a two-country search theoretic model. Each country consists of infinitely-lived private agents and a government. A representative agent obtains utility from the private...

We show that price stickiness is predicted by the theory of second best, applied to a random- matching model of money. The economy is hit with iid, aggregate, preference shocks, and allocations are allowed to be history dependent. Due to individual anonymity and lack of commitment, implementable...