Unit of Account, Medium of Exchange, and Prices
AbstractThe separation of a unit of account (UoA) from a medium of exchange (MoE) in the commodity-money system is investigated by considering explicitly a seller¡¯s choice with regard to posting price in terms of either an MoE or a UoA. If the likelihood of debasement of MoE or its rate is high enough and agents are sufficiently risk averse, there exists a monetary equilibrium in which price is quoted in terms of a UoA. Further, a UoA-posting equilibrium yields the flexible nominal price, whereas an MoE-posting equilibrium yields the sticky one. This suggests that in the fiat-money system where MoE and UoA are integrated, price would not be flexibly adjusted.
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Bibliographic InfoPaper provided by Institute of Economic Research, Korea University in its series Discussion Paper Series with number 1104.
Date of creation: 2011
Date of revision:
debasement; medium of exchange; unit of account; nominal price rigidity;
Find related papers by JEL classification:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
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