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Optimal divisibility when money is costly to produce

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  • Manjong Lee

    (Bank of Korea)

  • Neil Wallace

    (Pennsylvania State University)

Abstract

There is wide agreement that currency was not available in conveniently small denominations prior to the 19th century. Here, estimates of the costs of providing and maintaining money (coins) in 15th century Europe and parameterized versions of a matching model of money are used to find the optimal degree of divisibility. Although the optima are sensitive to the specification of the matching model, the optimal sizes we find agree in order of magnitude with the sizes of the most common coins in 15th century Europe. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2006.05.001
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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 9 (2006)
Issue (Month): 3 (July)
Pages: 541-556

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Handle: RePEc:red:issued:05-106

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Related research

Keywords: Divisibility of currency; Matching model; Coinage in the fifteenth century;

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References

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  1. Shouyong Shi, 1995. "Money and Prices: A Model of Search and Bargaining," Working Papers 916, Queen's University, Department of Economics.
  2. Manjong Lee & Neil Wallace & Tao Zhu, 2005. "Modeling Denomination Structures," Econometrica, Econometric Society, vol. 73(3), pages 949-960, 05.
  3. Rolnick, Arthur J. & Velde, Fran├žois R. & Weber, Warren E., 1996. "The Debasement Puzzle: An Essay on Medieval Monetary History," The Journal of Economic History, Cambridge University Press, vol. 56(04), pages 789-808, December.
  4. C. C. Patterson, 1972. "Silver Stocks and Losses in Ancient and Medieval Times," Economic History Review, Economic History Society, vol. 25(2), pages 205-233, 05.
  5. 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.
  6. Wallace, Neil & Zhou, Ruilin, 1997. "A model of a currency shortage," Journal of Monetary Economics, Elsevier, vol. 40(3), pages 555-572, December.
  7. Thomas J. Sargent & Neil Wallace, 1983. "A model of commodity money," Staff Report 85, Federal Reserve Bank of Minneapolis.
  8. Wallace, Neil, 2003. "Modeling Small Change: A Review Article," Working Papers 9-03-3, Pennsylvania State University, Department of Economics.
  9. Zhu, Tao, 2005. "Existence of a monetary steady state in a matching model: divisible money," Journal of Economic Theory, Elsevier, vol. 123(2), pages 135-160, August.
  10. Taber, Alexander & Wallace, Neil, 1999. "A Matching Model with Bounded Holdings of Indivisible Money," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 961-84, November.
  11. Sargent, Thomas J & Velde, Francois R, 1999. "The Big Problem of Small Change," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(2), pages 137-61, May.
  12. Wallace, Neil, 2003. "Modeling small change: a review article," Journal of Monetary Economics, Elsevier, vol. 50(6), pages 1391-1401, September.
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