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Float on a note


  • Tao Zhu
  • Neil Wallace


From 1863-1914, banks in the U.S. could issue notes subject to full collateral, a per-period tax on outstanding notes, redemption of notes on demand, and a clearing fee per issued note cleared through the Treasury. The system failed to satisfy a purported arbitrage condition; i.e., the yield on collateral exceeded the tax rate plus the product of the clearing fee and the average clearing rate of notes. The failure is explained by a model in which note issuers choose to issue notes only in trades that both produce a low clearing rate (high float) and are subject to diminishing returns

Suggested Citation

  • Tao Zhu & Neil Wallace, 2004. "Float on a note," Econometric Society 2004 Far Eastern Meetings 743, Econometric Society.
  • Handle: RePEc:ecm:feam04:743

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    References listed on IDEAS

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    Cited by:

    1. Calomiris, Charles W. & Mason, Joseph R., 2008. "Resolving the puzzle of the underissuance of national bank notes," Explorations in Economic History, Elsevier, vol. 45(4), pages 327-355, September.

    More about this item


    national banking system; note issuance; float;

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General


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