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Do You Mind if I Round?: Eliminating the Penny A Structural Analysis

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  • Andrew Keinsley

    (Department of Economics, The University of Kansas)

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    Abstract

    For decades, economists have debated the price-rounding effect on the economy if the penny is eliminated. Deviating from the bulk of the literature, which typically considers case-studies with empirical simulations and data manipulation, I evaluate a multiple household, deterministic model with endogenous currency production. My findings suggest that the elimination of the smallest unit of currency has a “nickel-and-dime” effect on the economy, regardless of the rounding policy. This structural model is constructed and calibrated to emulate a “worst-case scenario”, but it is also robust to the empirical results in the literature.

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    File URL: http://www2.ku.edu/~kuwpaper/2013Papers/201309.pdf
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    Bibliographic Info

    Paper provided by University of Kansas, Department of Economics in its series WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS with number 201309.

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    Length: 18 pages
    Date of creation: Oct 2013
    Date of revision:
    Handle: RePEc:kan:wpaper:201309

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    Related research

    Keywords: Penny; Rounding Policy; Deterministic Model; Treasury Policy; Currency; Multiple Household Model;

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    1. N. Gregory Mankiw, 2000. "The Savers-Spenders Theory of Fiscal Policy," NBER Working Papers 7571, National Bureau of Economic Research, Inc.
    2. Barnett, William A., 1978. "The user cost of money," Economics Letters, Elsevier, vol. 1(2), pages 145-149.
    3. Robert Whaples, 2007. "Time to Eliminate the Penny from the U.S. Coinage System: New Evidence," Eastern Economic Journal, Eastern Economic Association, vol. 33(1), pages 139-146, Winter.
    4. Raymond E. Lombra, 2001. "Eliminating the Penny from the U.S. Coinage System: An Economic Analysis," Eastern Economic Journal, Eastern Economic Association, vol. 27(4), pages 433-442, Fall.
    5. Weber, Christian E, 2000. ""Rule-of-Thumb" Consumption, Intertemporal Substitution, and Risk Aversion," Journal of Business & Economic Statistics, American Statistical Association, vol. 18(4), pages 497-502, October.
    6. Michael T. Belongia & Peter N. Ireland, 2010. "The Barnett Critique After Three Decades: A New Keynesian Analysis," Boston College Working Papers in Economics 736, Boston College Department of Economics.
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