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On the Coexistence of Money and Bonds

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  • David Andolfatto

    (Simon Fraser University)

Abstract

This paper re-examines the so-called coexistence puzzle in terms of a modified version of the legal restrictions hypothesis initially put forth by Bryant and Wallace (1980). The modification is in terms of dropping a questionable assumption in the original hypothesis; i.e., that large denomination government bonds cannot be intermediated by private banks. This restriction is replaced by one that is arguably more palatable; i.e., that the intermediated monetary instruments created by private banks are not universally acceptable as payment for all exchanges (unlike government money). The friction that gives rise to this latter restriction is one that is commonly employed in monetary models where fiat money is essential for exchange.

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File URL: http://128.118.178.162/eps/mac/papers/0502/0502020.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0502020.

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Length: 16 pages
Date of creation: 09 Feb 2005
Date of revision:
Handle: RePEc:wpa:wuwpma:0502020

Note: Type of Document - pdf; pages: 16
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Web page: http://128.118.178.162

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  1. Andolfatto, David & Nosal, Ed, 2009. "Money, intermediation, and banking," Journal of Monetary Economics, Elsevier, vol. 56(3), pages 289-294, April.
  2. Rao Aiyagari, S. & Wallace, Neil & Wright, Randall, 1996. "Coexistence of money and interest-bearing securities," Journal of Monetary Economics, Elsevier, vol. 37(3), pages 397-419, June.
  3. White, Lawrence H, 1987. "Accounting for Non-interest-Bearing Currency: A Critique of the Legal Restrictions Theory of Money," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(4), pages 448-56, November.
  4. Robert B. Litterman, 1983. "Optimal control of the money supply," Staff Report 82, Federal Reserve Bank of Minneapolis.
  5. Gabriele Camera & Charles Noussair & Steven Tucker, 2003. "Rate-of-return dominance and efficiency in an experimental economy," Economic Theory, Springer, vol. 22(3), pages 629-660, October.
  6. Richard C.K. Burdekin & Marc D. Weidenmier, . "Interest-Bearing Currency and Legal Restrictions Theory: Lessons from the Southern Confederacy," Claremont Colleges Working Papers 1999-14, Claremont Colleges.
  7. Neil Wallace, 1983. "A legal restrictions theory of the demand for "money" and the role of monetary policy," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win.
  8. Bruce D. Smith, 2003. "Taking intermediation seriously," Proceedings, Federal Reserve Bank of Cleveland, pages 1319-1377.
  9. Makinen, Gail E & Woodward, G Thomas, 1986. "Some Anecdotal Evidence Relating to the Legal Restrictions Theory of the Demand for Money," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 260-65, April.
  10. Cowen, Tyler & Kroszner, Randall, 1989. "Scottish Banking before 1845: A Model for Laissez-Faire?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(2), pages 221-31, May.
  11. John Bryant & Neil Wallace, 1980. "A suggestion for further simplifying the theory of money," Staff Report 62, Federal Reserve Bank of Minneapolis.
  12. Arthur J. Rolnick & Warren E. Weber, 1982. "Free banking, wildcat banking, and shinplasters," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Deep money, the coexistence puzzle, and the legal restrictions hypothesis
    by JP Koning in Moneyness on 2014-05-24 03:31:00
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Cited by:
  1. Ricardo Lagos, 2010. "Moneyspots," 2010 Meeting Papers 498, Society for Economic Dynamics.

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