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On the recognizability of money

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Listed:
  • Richard Dutu
  • Ed Nosal
  • Guillaume Rocheteau

Abstract

This paper develops a model of currency circulation under asymmetric information. Agents are heterogeneous and trade in bilateral matches. Coins are intrinsically valuable and are available in two weights, light and heavy. We characterize the equilibrium under complete information and under imperfect information about the quality of coins. We determine a set of conditions under which the two currencies circulate and are traded according to different terms of trade. We study how output, welfare, and the velocity of currency are affected by the recognizability of coins. We show that society's welfare increases as coins become more easily recognizable.

Suggested Citation

  • Richard Dutu & Ed Nosal & Guillaume Rocheteau, 2005. "On the recognizability of money," Working Paper 0512, Federal Reserve Bank of Cleveland.
  • Handle: RePEc:fip:fedcwp:0512
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    References listed on IDEAS

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    1. Edward J. Green & Warren E. Weber, 1996. "Will the new $100 bill decrease counterfeiting?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 3-10.
    2. Burdett, Kenneth & Trejos, Alberto & Wright, Randall, 2001. "Cigarette Money," Journal of Economic Theory, Elsevier, vol. 99(1-2), pages 117-142, July.
    3. Nosal, Ed & Wallace, Neil, 2007. "A model of (the threat of) counterfeiting," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 994-1001, May.
    4. Berentsen, Aleksander & Molico, Miguel & Wright, Randall, 2002. "Indivisibilities, Lotteries, and Monetary Exchange," Journal of Economic Theory, Elsevier, vol. 107(1), pages 70-94, November.
    5. Engineer, M. & Bernhardt, D., 1991. "Adverse Selection , Money and Barter," Working Papers 1991-9, University of Guelph, Department of Economics and Finance.
    6. Haegler, Urs, 1997. "Fiat Money and Quality Uncertainty," Economica, London School of Economics and Political Science, vol. 64(256), pages 547-565, November.
    7. 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.
    8. Aleksander Berentsen & Guillaume Rocheteau, 2004. "Money and Information," Review of Economic Studies, Oxford University Press, vol. 71(4), pages 915-944.
    9. Li, Yiting, 1995. "Commodity money under private information," Journal of Monetary Economics, Elsevier, vol. 36(3), pages 573-592, December.
    10. Lagos, Ricardo & Rocheteau, Guillaume, 2008. "Money and capital as competing media of exchange," Journal of Economic Theory, Elsevier, vol. 142(1), pages 247-258, September.
    11. Berentsen, Aleksander & Rocheteau, Guillaume, 2002. "On the efficiency of monetary exchange: how divisibility of money matters," Journal of Monetary Economics, Elsevier, vol. 49(8), pages 1621-1649, November.
    12. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-954, August.
    13. Klaus Kultti, 1996. "A monetary economy with counterfeiting," Journal of Economics, Springer, vol. 63(2), pages 175-186, June.
    14. 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.
    15. Sargent, Thomas J. & Wallace, Meil, 1983. "A model of commodity money," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 163-187.
    16. Gandal, Neil & Sussman, Nathan, 1997. "Asymmetric Information and Commodity Money: Tickling the Tolerance in Medieval France," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(4), pages 440-457, November.
    17. Brunner, Karl & Meltzer, Allan H, 1971. "The Uses of Money: Money in the Theory of an Exchange Economy," American Economic Review, American Economic Association, vol. 61(5), pages 784-805, December.
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