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The big problem of small change

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Author Info
Thomas J. Sargent
Francois R. Velde

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Abstract

Western Europe was plagued with currency shortages from the 14th century, at which a 'standard formula' had been devised to cure the problem. We use a cash-in-advance model of commodity money to define a currency shortage, show that they could develop and persist under commodity money regime, and analyze the role played by each ingredient in the standard formula. A companion paper documents the evolution of monetary theory, monetary experiments and minting technology over the course of six hundred years.

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Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series, Macroeconomic Issues with number WP-97-08.

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Date of creation: 1997
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Handle: RePEc:fip:fedhma:wp-97-08

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Related research
Keywords: Monetary theory ; Money ; Money theory;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Lucas, Robert Jr., 1982. "Interest rates and currency prices in a two-country world," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 335-359. [Downloadable!] (restricted)
  2. Diaz-Gimenez, Javier & Prescott, Edward C. & Fitzgerald, Terry & Alvarez, Fernando, 1992. "Banking in computable general equilibrium economies," Journal of Economic Dynamics and Control, Elsevier, vol. 16(3-4), pages 533-559. [Downloadable!] (restricted)
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  3. Thomas Sargent & Bruce Smith, . "Coinage, Debasements, and Gresham's Laws," Papers _003, Stanford University, Hoover Institution. [Downloadable!]
    Other versions:
  4. Redish, Angela, 1990. "The Evolution of the Gold Standard in England," The Journal of Economic History, Cambridge University Press, vol. 50(04), pages 789-805, December. [Downloadable!]
    Other versions:
  5. Kareken, John & Wallace, Neil, 1981. "On the Indeterminacy of Equilibrium Exchange Rates," The Quarterly Journal of Economics, MIT Press, vol. 96(2), pages 207-22, May. [Downloadable!] (restricted)
  6. Helpman, Elhanan, 1981. "An Exploration in the Theory of Exchange-Rate Regimes," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 865-90, October. [Downloadable!] (restricted)
  7. Glassman, Debra & Redish, Angela, 1988. "Currency depreciation in early modern England and France," Explorations in Economic History, Elsevier, vol. 25(1), pages 75-97, January. [Downloadable!] (restricted)
  8. Sims, Christopher A, 1990. "Solving the Stochastic Growth Model by Backsolving with a Particular Nonlinear Form for the Decision Rule," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(1), pages 45-47, January.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Cecilia Font de Villanueva, 2006. "Monetary reform in times of Charles II (1679-1686): Aspects concerning the issued dispositions," Working Papers in Economic History wp06-07, Universidad Carlos III, Departamento de Historia Económica e Instituciones. [Downloadable!]
  2. José I. García de Paso, . "El Análisis de la Política Monetaria de Felipe IV y el Conde-Duque de Olivares por Don Francisco de Quevedo y Villegas," Studies on the Spanish Economy 104, FEDEA. [Downloadable!]
  3. David T. Griffiths, 2004. "The big problem of forecasting small change," Applied Economics, Taylor and Francis Journals, vol. 36(19), pages 2195-2207, September. [Downloadable!] (restricted)
  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. [Downloadable!]
  5. Wallace, Neil, 2003. "Modeling Small Change: A Review Article," Working Papers 9-03-3, Pennsylvania State University, Department of Economics. [Downloadable!]
  6. Huberto M. Ennis, 2006. "The problem of small change in early Argentina," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 93-111. [Downloadable!]
  7. Esteban A. Nicolini & Fernando Ramos, 2006. "A Methodological approach to estimating the Money Demand in Pre-Industrial Economies: Probate Inventories and Spain in the 18th century," Working Papers in Economic History wh061902, Universidad Carlos III, Departamento de Historia Económica e Instituciones. [Downloadable!]
  8. José I. García de Paso, . "The 1628 Castilian Crydown: A Test of Competing Theories of the Price Level," Studies on the Spanish Economy 103, FEDEA. [Downloadable!]
  9. José I. García de Paso, . "The 1628 Castilian Crydown: Origins and Failure," Studies on the Spanish Economy 110, FEDEA. [Downloadable!]
  10. Huberto M. Ennis, 2003. "Shortages of small change in early Argentina," Working Paper 03-12, Federal Reserve Bank of Richmond. [Downloadable!]
  11. Manjong Lee & Neil Wallace, 2006. "Optimal divisibility when money is costly to produce," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(3), pages 541-556, July. [Downloadable!] (restricted)
  12. Carlos Álvarez, 2003. "Spanish Monarchy´S Monetary Problems In The Seventeenth Century: Small Change And Foreign Credit," Working Papers in Economic History wh030905, Universidad Carlos III, Departamento de Historia Económica e Instituciones. [Downloadable!]
  13. Francois R. Velde, 1998. "Lessons from the history of money," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q I, pages 2-16. [Downloadable!]
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