A Model of Commodity Money, with Applications to Gresham's Law and the Debasement Puzzle
AbstractWhat are the conditions under which Gresham's Law holds? And what are the mechanics of a debasement? To analyze these questions, we develop a model of commodity money with light and heavy coins, imperfect information, and prices determined via bilateral bargaining. There are equilibria with neither, both, or only one type of coin in circulation. When both circulate, coins may trade by weight or by tale. We discuss the extent to which Gresham's Law holds in the various cases. Following a debasement, depending on the incentives offered, equilibria exist with positive seigniorage and a mixture of old and new coins in circulation. (Copyright: Elsevier)
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Volume (Year): 2 (1999)
Issue (Month): 1 (January)
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- Francois R. Velde & Warren E. Weber & Randall Wright, 1997. "A model of commodity money, with applications to Gresham's law and the debasement puzzle," Staff Report 215, Federal Reserve Bank of Minneapolis.
- Francois R. Velde & Warren E. Weber & Randall Wright, 1997. "A model of commodity money, with applications to Gresham's Law and the debasement puzzle," Working Paper Series, Macroeconomic Issues WP-97-12, Federal Reserve Bank of Chicago.
- Francois R. Velde & Warren E. Weber & Randall Wright, . "A Model of Commodity Money, With Application to Gresham's Law and the Debasement Puzzle," CARESS Working Papres 97-7, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
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