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Legal Restrictions, "Sunspots," and Peel's Bank Act: The Real Bills Doctrine versus the Quantity Theory Reconsidered

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  • Smith, Bruce D

Abstract

This paper considers two questions: (1) what is the purpose of legal restrictions intended to separate "money" fr om "credit markets," and (2) is such a separation desirable? It is argued that historical legal restrictions meant to achieve such a sep aration were designed to preclude the occurrence of sunspot equilibri a. It is also shown that a coherent model can be constructed in which sunspot equilibria exist in the absence of legal restrictions, but n ot if money and credit markets are separated. Nevertheless, there is no obvious welfare justification for such a separation. Copyright 1988 by University of Chicago Press.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 96 (1988)
Issue (Month): 1 (February)
Pages: 3-19

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Handle: RePEc:ucp:jpolec:v:96:y:1988:i:1:p:3-19

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Cited by:
  1. Charles T. Carlstrom & Timothy S. Fuerst, 1995. "Interest rate rules vs. money growth rules: a welfare comparison in a cash-in-advance economy," Working Paper 9504, Federal Reserve Bank of Cleveland.
  2. Ennis, Huberto M. & Keister, Todd, 2005. "Optimal fiscal policy under multiple equilibria," Journal of Monetary Economics, Elsevier, vol. 52(8), pages 1359-1377, November.
  3. Espinosa-Vega, Marco A. & Smith, Bruce D. & Yip, Chong K., 2002. "Monetary Policy and Government Credit Programs," Journal of Financial Intermediation, Elsevier, vol. 11(3), pages 232-268, July.
  4. Joydeep Bhattacharya & Joseph H. Haslag, 2000. "Reliance, composition, and inflation," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q IV, pages 20-28.
  5. Andreas Schabert, 2004. "On the Relevance of Open Market Operations," 2004 Meeting Papers 272, Society for Economic Dynamics.
  6. Bhattacharya, Joydeep & Singh, Rajesh, 2005. "Optimal Choice of Monetary Instruments in an Economy with Real and Liquidity Shocks," Staff General Research Papers 12355, Iowa State University, Department of Economics.

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  1. Recursive Macroeconomic Theory

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