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A model of a currency shortage

  • Neil Wallace
  • Ruilin Zhou

Until the mid-19th century, shortages of currency were sometimes serious problems. One common response was to prohibit the export of coins. We use a random matching model with indivisible money to explain a shortage and to judge the desirability of a prohibition on the export of coins. The model, although extreme in many regards, represents better than earlier models a demand for outside money and the problems that arise when that money is indivisible. It can also rationalize a prohibition on the export of coins.

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Paper provided by Federal Reserve Bank of Minneapolis in its series Working Papers with number 569.

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Date of creation: 1996
Date of revision:
Publication status: Published in Journal of Monetary Economics (Vol. 40, No. 3, December 1997, pp. 555-572)
Handle: RePEc:fip:fedmwp:569
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  1. S. Rao Aiyagari & Neil Wallace & Randall Wright, 1996. "Coexistence of money and interest-bearing securities," Working Papers 550, Federal Reserve Bank of Minneapolis.
  2. Ruilin Zhou, 1997. "Currency Exchange in a Random Search Model," Review of Economic Studies, Oxford University Press, vol. 64(2), pages 289-310.
  3. Glassman, Debra & Redish, Angela, 1988. "Currency depreciation in early modern England and France," Explorations in Economic History, Elsevier, vol. 25(1), pages 75-97, January.
  4. Shi Shougong, 1995. "Money and Prices: A Model of Search and Bargaining," Journal of Economic Theory, Elsevier, vol. 67(2), pages 467-496, December.
  5. Marimon, Ramon & Wallace, Neil, 1987. "Trade using assets divisible at a cost," Journal of Economic Theory, Elsevier, vol. 43(2), pages 223-251, December.
  6. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August.
  7. Kiminori Matsuyama & Nobuhiro Kiyotaki & Akihiko Matsui, 1993. "Toward a Theory of International Currency," Review of Economic Studies, Oxford University Press, vol. 60(2), pages 283-307.
  8. Hanson, John R, II, 1979. "Money in the Colonial American Economy: An Extension," Economic Inquiry, Western Economic Association International, vol. 17(2), pages 281-86, April.
  9. Trejos, Alberto & Wright, Randall, 1995. "Search, Bargaining, Money, and Prices," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 118-41, February.
  10. Cooley Thomas F. & Smith Bruce D., 1995. "Indivisible Assets, Equilibrium, and the Value of Intermediation," Journal of Financial Intermediation, Elsevier, vol. 4(1), pages 48-76, January.
  11. Hart, Oliver D., 1975. "On the optimality of equilibrium when the market structure is incomplete," Journal of Economic Theory, Elsevier, vol. 11(3), pages 418-443, December.
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