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Gresham's Law in a Lemons Market for Assets

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  • S. Rao Aiyagari

Abstract

The authors describe a simple environment in which assets of varying qualities may be used for transactions and consumption. The quality of an asset is known to the seller, but not to the buyer. This feature generates a negative relationship between the transactions velocities of assets and their rates of return. They also discuss several versions of Gresham's Law that hold in this environment.

Suggested Citation

  • S. Rao Aiyagari, 1989. "Gresham's Law in a Lemons Market for Assets," Canadian Journal of Economics, Canadian Economics Association, vol. 22(3), pages 686-697, August.
  • Handle: RePEc:cje:issued:v:22:y:1989:i:3:p:686-97
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    Cited by:

    1. Charles M. Kahn & William Roberds, 1995. "On the efficiency of cash settlement," FRB Atlanta Working Paper 95-11, Federal Reserve Bank of Atlanta.
    2. Fran├žois R. Velde & Warren E. Weber & Randall Wright, 1999. "A Model of Commodity Money, with Applications to Gresham's Law and the Debasement Puzzle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 291-323, January.
    3. Williamson, Steve & Wright, Randall, 1994. "Barter and Monetary Exchange under Private Information," American Economic Review, American Economic Association, vol. 84(1), pages 104-123, March.
    4. Rocheteau, Guillaume, 2011. "Payments and liquidity under adverse selection," Journal of Monetary Economics, Elsevier, vol. 58(3), pages 191-205.
    5. Tai-Wei Hu, 2013. "Imperfect recognizability and coexistence of money and higher-return assets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 53(1), pages 111-138, May.
    6. Isabel Schnabel & Hyun Song Shin, 2018. "Money and trust: lessons from the 1620s for money in the digital age," BIS Working Papers 698, Bank for International Settlements.

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