Abstract :
This article investigates the roles of policy in search models with divisible
money. Recently, real indeterminacy of stationary equilibria has been found in
both specific and general search models with divisible money. Thus if we assume
the divisibility of money, it would be quite difficult to make accurate predictions
of the effects of simple monetary policies. Therefore, in this article,we introduce a
certain tax subsidy scheme and show that this is effective in selecting a determinate
efficient equilibrium. In other words, for a given efficient equilibrium and for any
real number δ > 0, a certain tax subsidy scheme induces a locally determinate
equilibrium within the δ-neighborhood of the given equilibrium. Moreover, the
size of the tax subsidy can be arbitrarily small.
