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Commodity Money Inflation: Theory and Evidence from France in 1350-1436

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  • Sussman, Nathan

    (Hebrew U of Jerusalem)

  • Zeira, Joseph

    (Hebrew U of Jerusalem, Harvard U, and CEPR)

Abstract

This paper presents a theory of inflation in commodity money and supports it by evidence from inflationary episodes in France during the fourteenth and fifteenth centuries. The paper shows that commodity money can be inflated similarly to fiat money through repeated debasements, which act like devaluations. Furthermore, as with fiat money, demand for commodity money falls with inflation. Unlike fiat money, at high rates of inflation demand for commodity money becomes insensitive to inflation, since commodity money has intrinsic value in addition to its transactions value. Finally, we show that an anticipated stabilization reduces demand for commodity money, which is opposite to the effect of anticipated standard stabilization on demand for fiat money.

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Paper provided by Harvard University, John F. Kennedy School of Government in its series Working Paper Series with number rwp02-008.

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Date of creation: Feb 2002
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Handle: RePEc:ecl:harjfk:rwp02-008

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  1. 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, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences 97-7, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  2. Kindleberger, Charles P., 1991. "The Economic Crisis of 1619 to 1623," The Journal of Economic History, Cambridge University Press, Cambridge University Press, vol. 51(01), pages 149-175, March.
  3. Arthur J. Rolnick & Francois R. Velde & Warren E. Weber, 1997. "The debasement puzzle: an essay on medieval monetary history," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Fall, pages 8-20.
  4. Sussman, Nathan, 1993. "Debasements, Royal Revenues, and Inflation in France During the Hundred Years' War, 1415–1422," The Journal of Economic History, Cambridge University Press, Cambridge University Press, vol. 53(01), pages 44-70, March.
  5. Gandal, Neil & Sussman, Nathan, 1997. "Asymmetric Information and Commodity Money: Tickling the Tolerance in Medieval France," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 29(4), pages 440-57, November.
  6. Motomura, Akira, 1994. "The Best and Worst of Currencies: Seigniorage and Currency Policy in Spain, 1597–1650," The Journal of Economic History, Cambridge University Press, Cambridge University Press, vol. 54(01), pages 104-127, March.
  7. Pamuk, Şevket, 1997. "In the Absence of Domestic Currency: Debased European Coinage in the Seventeenth–Century Ottoman Empire," The Journal of Economic History, Cambridge University Press, Cambridge University Press, vol. 57(02), pages 345-366, June.
  8. Bruce D. Smith & Thomas J. Sargent, 1997. "Coinage, debasements, and Gresham's laws," Economic Theory, Springer, Springer, vol. 10(2), pages 197-226.
  9. Beatrix Paal, 2000. "Destabilizing effects of a successful stabilization: a forward-looking explanation of the second Hungarian hyperinflation," Economic Theory, Springer, Springer, vol. 15(3), pages 599-630.
  10. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, December.
  11. Li, Yiting, 1995. "Commodity money under private information," Journal of Monetary Economics, Elsevier, Elsevier, vol. 36(3), pages 573-592, December.
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Cited by:
  1. William Roberds & Stephen Quinn, 2005. "The Big Problem of Large Bills: The Bank of Amsterdam and the Origins of Central Banking," 2005 Meeting Papers, Society for Economic Dynamics 318, Society for Economic Dynamics.
  2. Stephen Quinn & William Roberds, 2006. "An economic explanation of the early Bank of Amsterdam, debasement, bills of exchange, and the emergence of the first central bank," Working Paper, Federal Reserve Bank of Atlanta 2006-13, Federal Reserve Bank of Atlanta.
  3. Oliver Volckart, 2007. "Rules, Discretion or Reputation? Monetary Policies and the Efficiency of Financial Markets in Germany, 14th to 16th Centuries," SFB 649 Discussion Papers SFB649DP2007-007, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  4. John H. Munro, 2009. "Coinage and Monetary Policies in Burgundian Flanders during the late-medieval 'Bullion Famines',. 1384 - 1482," Working Papers tecipa-361, University of Toronto, Department of Economics.
  5. Oliver Volckart, 2008. "‘The big problem of the petty coins’, and how it could be solved in the late Middle Ages," Economic History Working Papers, London School of Economics and Political Science, Department of Economic History 22310, London School of Economics and Political Science, Department of Economic History.
  6. Michael Graff, 2008. "The Quantity Theory of Money in Historical Perspective," KOF Working papers 08-196, KOF Swiss Economic Institute, ETH Zurich.

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