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Coin Sizes And Payments In Commodity Money Systems

  • Redish, Angela
  • Weber, Warren E.

Contemporaries and economic historians have noted several features of medieval and early modern European monetary systems that are hard to analyze using models of centralized exchange. For example, contemporaries complained of recurrent shortages of small change and argued that an abundance/dearth of money had real effects on exchange, especially for the poor. To confront these facts, we build a random-matching monetary model with two indivisible coins with different intrinsic values. The model shows that small change shortages can exist, in the sense that adding small coins to an economy with only large coins is welfare-improving. This effect is amplified by increases in trading opportunities. Further, changes in the quantity of monetary metals affect the real economy and the amount of exchange as well as the optimal denomination size. Finally, the model shows that replacing full-bodied small coins with tokens is not necessarily welfare-improving.

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Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 15 (2011)
Issue (Month): S1 (April)
Pages: 62-82

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Handle: RePEc:cup:macdyn:v:15:y:2011:i:s1:p:62-82_00
Contact details of provider: Postal: Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK
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  1. Francois R. Velde & Warren E. Weber & Randall Wright, . "A Model of Commodity Money, With Application to Gresham's Law and the Debasement Puzzle," CARESS Working Papres 97-7, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  2. François R. Velde & Warren E. Weber, 1998. "A model of bimetallism," Working Papers 588, Federal Reserve Bank of Minneapolis.
  3. repec:cup:cbooks:9780521570916 is not listed on IDEAS
  4. Vincent Bignon & Richard Dutu, 2006. "Moneychangers and Commodity Money," EconomiX Working Papers 2006-9, University of Paris West - Nanterre la Défense, EconomiX.
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