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A model of private bank-note issue

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  • Ricardo de O. Cavalcanti

    (Department of Economics, Pennsylvania State University and EPGE, Getulio Vargas Foundation)

  • Neil Wallace

    (Department of Economics, Pennsylvania State University)

Abstract

A random-matching model (of money) is formulated in which there is complete public knowledge of the trading histories of a subset of the population, called the banking sector, and no public knowledge of the trading histories of the complement of that subset, called the non bank sector. Each person, whether a banker or a non banker, is assumed to have the technological capability to create indivisible, distinct, and durable objects called notes. If outside money is indivisible and sufficiently scarce, then an optimal mechanism is shown to have note issue and note redemption (destruction) by members of the banking sector. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1006/redy.1998.0044
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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): 2 (1999)
Issue (Month): 1 (January)
Pages: 104-136

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Handle: RePEc:red:issued:v:2:y:1999:i:1:p:104-136

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Related research

Keywords: inside money; bank notes; matching model;

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References

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  1. Diamond, Peter, 1990. "Pairwise Credit in Search Equilibrium," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 105(2), pages 285-319, May.
  2. Neil Wallace & Ruilin Zhou, 1996. "A model of a currency shortage," Working Papers, Federal Reserve Bank of Minneapolis 569, Federal Reserve Bank of Minneapolis.
  3. Mark Huggett & Stefan Krasa, 1996. "Money and storage in a differential information economy (*)," Economic Theory, Springer, Springer, vol. 8(2), pages 191-209.
  4. Narayana R. Kocherlakota, 1996. "Money is memory," Staff Report, Federal Reserve Bank of Minneapolis 218, Federal Reserve Bank of Minneapolis.
  5. Ricardo de O. Cavalcanti & Andres Erosa & Ted Temzelides, 1999. "Private Money and Reserve Management in a Random-Matching Model," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 107(5), pages 929-945, October.
  6. Narayana R. Kocherlakota & Neil Wallace, 1997. "Optimal allocations with incomplete record-keeping and no commitment," Working Papers, Federal Reserve Bank of Minneapolis 578, Federal Reserve Bank of Minneapolis.
  7. Shi, Shouyong, 1996. "Credit and Money in a Search Model with Divisible Commodities," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 63(4), pages 627-52, October.
  8. Klein, Benjamin, 1974. "The Competitive Supply of Money," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 6(4), pages 423-53, November.
  9. S. Rao Aiyagari & Neil Wallace, 1991. "Existence of steady states with positive consumption in the Kiyotaki-Wright model," Working Papers, Federal Reserve Bank of Minneapolis 428, Federal Reserve Bank of Minneapolis.
  10. Shouyong Shi, 1995. "Money and Prices: A Model of Search and Bargaining," Working Papers, Queen's University, Department of Economics 916, Queen's University, Department of Economics.
  11. Trejos, Alberto & Wright, Randall, 1995. "Search, Bargaining, Money, and Prices," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 103(1), pages 118-41, February.
  12. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 97(4), pages 927-54, August.
  13. Hanson, John R, II, 1979. "Money in the Colonial American Economy: An Extension," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 17(2), pages 281-86, April.
  14. Glassman, Debra & Redish, Angela, 1988. "Currency depreciation in early modern England and France," Explorations in Economic History, Elsevier, Elsevier, vol. 25(1), pages 75-97, January.
  15. Martin Eichenbaum & Neil Wallace, 1985. "A shred of evidence on public acceptance of privately issued currency," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Win.
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