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Coin Sizes And Payments In Commodity Money Systems

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  • Redish, Angela
  • Weber, Warren E.

Abstract

Commodity money standards in medieval and early modern Europe were characterized by recurring complaints of small change shortages and by numerous debasements of the coinage. To confront these facts, we build a random matching monetary model with two indivisible coins with different intrinsic values. The model shows that small change shortages can exist in the sense that changes in the size of the small coin affect ex ante welfare. Further, the optimal ratio of coin sizes is shown to depend upon the trading opportunities in a country and a country's wealth. Thus, coinage debasements can be interpreted as optimal responses to changes in fundamentals. Further, the model shows that replacing full-bodied small coins with tokens is not necessarily welfare-improving.

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Bibliographic Info

Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 15 (2011)
Issue (Month): S1 (April)
Pages: 62-82

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Handle: RePEc:cup:macdyn:v:15:y:2011:i:s1:p:62-82_00

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  1. François R. Velde & Warren E. Weber & Randall Wright, 1999. "A Model of Commodity Money, with Applications to Gresham's Law and the Debasement Puzzle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 291-323, January.
  2. François R. Velde & Warren E. Weber, 1998. "A model of bimetallism," Working Papers 588, Federal Reserve Bank of Minneapolis.
  3. Redish,Angela, 2000. "Bimetallism," Cambridge Books, Cambridge University Press, number 9780521570916, April.
  4. Vincent Bignon & Richard Dutu, 2006. "Moneychangers and Commodity Money," EconomiX Working Papers 2006-9, University of Paris West - Nanterre la Défense, EconomiX.
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Cited by:
  1. Williamson, Stephen & Wright, Randall, 2010. "New Monetarist Economics: Models," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 2, pages 25-96 Elsevier.
  2. Farley Grubb, 2012. "Chronic Specie Scarcity and Efficient Barter: The Problem of Maintaining an Outside Money Supply in British Colonial America ," Working Papers 12-08, University of Delaware, Department of Economics.
  3. Angela Redish & Warren E. Weber, 2011. "A model of commodity money with minting and melting," Staff Report 460, Federal Reserve Bank of Minneapolis.

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