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One or Two Monies?

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  • Janet Hua, Jiang
  • Mei, Dong

Abstract

We investigate whether money constitutes a perfect substitute for the missing record-keeping technology in a quasi-linear environment, where private information and limited commitment are present. We adopt the mechanism design approach and solve a social planner�s problem subject to the resource constraint, the incentive constraints imposed by the existing frictions, and the available memory technologies. The result is that when money is divisible, concealable and in variable supply, a single money may or may not be su¢ cient to replace the record-keeping technology. We further show that two monies serve as a perfect substitute for the record-keeping technology so that there is no need for a third money.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 14846.

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Date of creation: 21 Sep 2008
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Handle: RePEc:pra:mprapa:14846

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Keywords: Record-keeping; Money; Private Information; Limited Commit- ment; Mechanism Design;

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  1. Kocherlakota, Narayana R., 1998. "Money Is Memory," Journal of Economic Theory, Elsevier, vol. 81(2), pages 232-251, August.
  2. Trejos, Alberto & Wright, Randall, 1995. "Search, Bargaining, Money, and Prices," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 118-41, February.
  3. Ricardo Lagos & Randall Wright, 2002. "A unified framework for monetary theory and policy analysis," Working Paper 0211, Federal Reserve Bank of Cleveland.
  4. Christopher J. Waller, 2009. "Dynamic taxation, private information and money," Working Papers 2009-035, Federal Reserve Bank of St. Louis.
  5. anonymous, 1998. "Technological role of fiat money," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum.
  6. Townsend, Robert M, 1987. "Economic Organization with Limited Communication," American Economic Review, American Economic Association, vol. 77(5), pages 954-71, December.
  7. David Andolfatto, 2011. "The simple analytics of money and credit in a quasi-linear environment," Working Papers 2011-038, Federal Reserve Bank of St. Louis.
  8. Camera, Gabriele & Winkler, Johannes, 2003. "International monetary trade and the law of one price," Journal of Monetary Economics, Elsevier, vol. 50(7), pages 1531-1553, October.
  9. Kiminori Matsuyama, 1991. "Toward a Theory of International Currency," Discussion Papers 931, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  10. Craig, Ben & Waller, C.J.Christopher J., 2004. "Dollarization and currency exchange," Journal of Monetary Economics, Elsevier, vol. 51(4), pages 671-689, May.
  11. Wright Randall & Trejos Alberto, 2001. "International Currency," The B.E. Journal of Macroeconomics, De Gruyter, vol. 1(1), pages 1-17, April.
  12. Ostroy, Joseph M, 1973. "The Informational Efficiency of Monetary Exchange," American Economic Review, American Economic Association, vol. 63(4), pages 597-610, September.
  13. Camera, Gabriele & Craig, Ben & Waller, Christopher J., 2004. "Currency competition in a fundamental model of money," Journal of International Economics, Elsevier, vol. 64(2), pages 521-544, December.
  14. Narayana Kocherlakota & Thomas Krueger, 1999. "A Signaling Model of Multiple Currencies," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 231-244, January.
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