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On the recognizability of money

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Author Info
Richard Dutu
Ed Nosal
Guillaume Rocheteau

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Abstract

This paper develops a model of currency circulation under asymmetric information. Agents are heterogeneous and trade in bilateral matches. Coins are intrinsically valuable and are available in two weights, light and heavy. We characterize the equilibrium under complete information and under imperfect information about the quality of coins. We determine a set of conditions under which the two currencies circulate and are traded according to different terms of trade. We study how output, welfare, and the velocity of currency are affected by the recognizability of coins. We show that society's welfare increases as coins become more easily recognizable.

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Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 0512.

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Date of creation: 2005
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Handle: RePEc:fip:fedcwp:0512

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Keywords: Money;

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  1. Li, Yiting, 1995. "Commodity money under private information," Journal of Monetary Economics, Elsevier, vol. 36(3), pages 573-592, December. [Downloadable!] (restricted)
  2. Edward J. Green & Warren Weber, 1996. "Will the New $100 Bill Decrease Counterfeiting?," Macroeconomics 9609003, EconWPA, revised 11 Sep 1996. [Downloadable!]
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  3. François R. Velde & Warren E. Weber & Randall Wright, 1999. "A Model of Commodity Money, with Applications to Gresham's Law and the Debasement Puzzle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 291-323, January. [Downloadable!] (restricted)
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  4. Burdett, Kenneth & Trejos, Alberto & Wright, Randall, 2001. "Cigarette Money," Journal of Economic Theory, Elsevier, vol. 99(1-2), pages 117-142, July. [Downloadable!] (restricted)
  5. Thomas J. Sargent & Neil Wallace, 1983. "A model of commodity money," Staff Report 85, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  6. Ed Nosal & Neil Wallace, 2004. "A model of (the threat of) counterfeiting," Working Paper 0401, Federal Reserve Bank of Cleveland. [Downloadable!]
  7. Berentsen, Aleksander & Molico, Miguel & Wright, Randall, 2002. "Indivisibilities, Lotteries, and Monetary Exchange," Journal of Economic Theory, Elsevier, vol. 107(1), pages 70-94, November. [Downloadable!] (restricted)
  8. Ricardo Lagos & Guillaume Rocheteau, 2004. "Money and capital as competing media of exchange," Staff Report 341, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  9. Haegler, Urs, 1997. "Fiat Money and Quality Uncertainty," Economica, London School of Economics and Political Science, vol. 64(256), pages 547-65, November. [Downloadable!] (restricted)
  10. Engineer, M. & Bernhardt, D., 1991. "Adverse Selection , Money and Barter," Working Papers 1991-9, University of Guelph, Department of Economics.
  11. King, Robert G. & Plosser, Charles I., 1986. "Money as the mechanism of exchange," Journal of Monetary Economics, Elsevier, vol. 17(1), pages 93-115, January. [Downloadable!] (restricted)
  12. Engineer, M. & Bernhardt, D., 1991. "Adverse Selection , Money and Barter," Working Papers 1991-9, University of Guelph, Department of Economics.
  13. Berentsen, Aleksander & Rocheteau, Guillaume, 2002. "On the efficiency of monetary exchange: how divisibility of money matters," Journal of Monetary Economics, Elsevier, vol. 49(8), pages 1621-1649, November. [Downloadable!] (restricted)
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  14. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August. [Downloadable!] (restricted)
  15. Williamson, Steve & Wright, Randall, 1994. "Barter and Monetary Exchange under Private Information," American Economic Review, American Economic Association, vol. 84(1), pages 104-23, March. [Downloadable!] (restricted)
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  16. Klaus Kultti, 1996. "A monetary economy with counterfeiting," Journal of Economics, Springer, vol. 63(2), pages 175-186, June. [Downloadable!] (restricted)
  17. Aleksander Berentsen & Guillaume Rocheteau, 2004. "Money and Information," Review of Economic Studies, Blackwell Publishing, vol. 71(4), pages 915-944, October. [Downloadable!] (restricted)
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  18. Gandal, Neil & Sussman, Nathan, 1997. "Asymmetric Information and Commodity Money: Tickling the Tolerance in Medieval France," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(4), pages 440-57, November.
  19. Brunner, Karl & Meltzer, Allan H, 1971. "The Uses of Money: Money in the Theory of an Exchange Economy," American Economic Review, American Economic Association, vol. 61(5), pages 784-805, December. [Downloadable!] (restricted)
  20. Alchian, Armen A, 1977. "Why Money?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 9(1), pages 133-40, February. [Downloadable!] (restricted)
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