Stabilizing The Expected Price Level In A Bfh Payments System
AbstractThe Black-Fama-Hall system of free banking promises improved macroeconomic performance through the use of a common unit of account defined in terms of a bundle of goods and services and indirectly convertible means of payment. This paper shows how BFH can operate when the actual market price of the dollar-defining bundle is measured only periodically. The proposed version of BFH would require banks to calculate the amount of redemption medium (gold or securities) needed to redeem money using the subsequent measurement of the bundle's market price. The procedure in effect would make checks, banknotes, and token coins of given face value directly convertible into redemption medium of equal market value and into an index futures contract on the bundle's market price. The paper explains how the system would tend to stabilize the expected price of the dollar-defining bundle and uses a dynamic stochastic model to illustrate the consequences for the actual price level, real income, and interest rates. Copyright 1994 Western Economic Association International.
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Bibliographic InfoArticle provided by Western Economic Association International in its journal Contemporary Economic Policy.
Volume (Year): 12 (1994)
Issue (Month): 2 (04)
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- Ould Ahmed, Pepita & Marques-Pereira, Jaime & Le Maux, Laurent & Desmedt, Ludovic & Blanc, Jerome & Théret, Bruno, 2013. "Monetary plurality in economic theory," Economics Papers from University Paris Dauphine 123456789/11496, Paris Dauphine University.
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