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A model of a currency shortage

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Author Info

  • Wallace, Neil
  • Zhou, Ruilin

Abstract

Until the mid-19th century, shortages of currency were sometimes serious problems. One common response was to prohibit the export of coins. We use a random matching model with indivisible money to explain a shortage and to judge the desirability of a prohibition on the export of coins. The model, although extreme in many regards, represents better than earlier models a demand for outside money and the problems that arise when that money is indivisible. It can also rationalize a prohibition on the export of coins.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 40 (1997)
Issue (Month): 3 (December)
Pages: 555-572

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Handle: RePEc:eee:moneco:v:40:y:1997:i:3:p:555-572

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Web page: http://www.elsevier.com/locate/inca/505566

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References

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  1. Rao Aiyagari, S. & Wallace, Neil & Wright, Randall, 1996. "Coexistence of money and interest-bearing securities," Journal of Monetary Economics, Elsevier, vol. 37(3), pages 397-419, June.
  2. Kiminori Matsuyama, 1991. "Toward a Theory of International Currency," Discussion Papers 931, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Trejos, Alberto & Wright, Randall, 1995. "Search, Bargaining, Money, and Prices," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 118-41, February.
  4. Zhou, Ruilin, 1997. "Currency Exchange in a Random Search Model," Review of Economic Studies, Wiley Blackwell, vol. 64(2), pages 289-310, April.
  5. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August.
  6. Hanson, John R, II, 1979. "Money in the Colonial American Economy: An Extension," Economic Inquiry, Western Economic Association International, vol. 17(2), pages 281-86, April.
  7. Shi Shougong, 1995. "Money and Prices: A Model of Search and Bargaining," Journal of Economic Theory, Elsevier, vol. 67(2), pages 467-496, December.
  8. Glassman, Debra & Redish, Angela, 1988. "Currency depreciation in early modern England and France," Explorations in Economic History, Elsevier, vol. 25(1), pages 75-97, January.
  9. Marimon, Ramon & Wallace, Neil, 1987. "Trade using assets divisible at a cost," Journal of Economic Theory, Elsevier, vol. 43(2), pages 223-251, December.
  10. Hart, Oliver D., 1975. "On the optimality of equilibrium when the market structure is incomplete," Journal of Economic Theory, Elsevier, vol. 11(3), pages 418-443, December.
  11. Cooley Thomas F. & Smith Bruce D., 1995. "Indivisible Assets, Equilibrium, and the Value of Intermediation," Journal of Financial Intermediation, Elsevier, vol. 4(1), pages 48-76, January.
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Citations

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Cited by:
  1. Farley Grubb, 2012. "Chronic Specie Scarcity and Efficient Barter: The Problem of Maintaining an Outside Money Supply in British Colonial America," NBER Working Papers 18099, National Bureau of Economic Research, Inc.
  2. Stephen D. Williamson & Randall Wright, 2010. "New Monetarist Economics: models," Staff Report 443, Federal Reserve Bank of Minneapolis.
  3. Wallace, Neil, 2003. "Modeling Small Change: A Review Article," Working Papers 9-03-3, Pennsylvania State University, Department of Economics.
  4. Manjong Lee & Neil Wallace, 2006. "Optimal divisibility when money is costly to produce," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(3), pages 541-556, July.
  5. Tao Zhu & Neil Wallace, 2004. "Float on a Note," 2004 Meeting Papers 342, Society for Economic Dynamics.
  6. Colacelli, Mariana & Blackburn, David J.H., 2009. "Secondary currency: An empirical analysis," Journal of Monetary Economics, Elsevier, vol. 56(3), pages 295-308, April.
  7. Svetlana Boyarchenko & Sergei Levendorskii, 2004. "Inside and Outside Money, with an Application to the Russian Virtual Economy," Macroeconomics 0405009, EconWPA.
  8. Ricardo de O. Cavalcanti & Neil Wallace, 1999. "A model of private bank-note issue," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 104-136, January.
  9. Wallace, Neil & Zhu, Tao, 2007. "Float on a note," Journal of Monetary Economics, Elsevier, vol. 54(2), pages 229-246, March.
  10. Wallace, Neil, 2000. "A model of the liquidity structure based on asset indivisibility," Journal of Monetary Economics, Elsevier, vol. 45(1), pages 55-68, February.
  11. Wallace, Neil, 2003. "Modeling small change: a review article," Journal of Monetary Economics, Elsevier, vol. 50(6), pages 1391-1401, September.
  12. Xavier Cuadras-Morató, 2009. "Circulation Of Private Notes During A Currency Shortage," Manchester School, University of Manchester, vol. 77(4), pages 461-478, 07.
  13. Huberto M. Ennis, 2003. "Shortages of small change in early Argentina," Working Paper 03-12, Federal Reserve Bank of Richmond.

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