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Unit of Account, Medium of Exchange, and Prices

  • Young Sik Kim

    ()

    (epartment of Economics & SIRFE, Seoul National University, Seoul, South Korea)

  • Manjong Lee

    ()

    (Department of Economics, Korea University, Seoul, South Korea)

Registered author(s):

    The separation of a unit of account (UoA) from a medium of exchange (MoE) in the commodity-money system is investigated by considering explicitly a seller¡¯s choice with regard to posting price in terms of either an MoE or a UoA. If the likelihood of debasement of MoE or its rate is high enough and agents are sufficiently risk averse, there exists a monetary equilibrium in which price is quoted in terms of a UoA. Further, a UoA-posting equilibrium yields the flexible nominal price, whereas an MoE-posting equilibrium yields the sticky one. This suggests that in the fiat-money system where MoE and UoA are integrated, price would not be flexibly adjusted.

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    File URL: http://econ.korea.ac.kr/~ri/WorkingPapers/w1104.pdf
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    Paper provided by Institute of Economic Research, Korea University in its series Discussion Paper Series with number 1104.

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    Date of creation: 2011
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    Handle: RePEc:iek:wpaper:1104
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    1. Thomas J. Sargent & Francois R. Velde, 1997. "The big problem of small change," Working Paper Series, Macroeconomic Issues WP-97-08, Federal Reserve Bank of Chicago.
    2. Arthur J. Rolnick & François R. Velde & Warren E. Weber, 1995. "The debasement puzzle: an essay on medieval monetary policy," Working Papers 536, Federal Reserve Bank of Minneapolis.
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    4. Arthur J. Rolnick & Francois R. Velde & Warren E. Weber, 1997. "The debasement puzzle: an essay on medieval monetary history," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 8-20.
    5. Aliprantis, C.D. & Camera, Gabriele & Puzzello, D., 2005. "Anonymous Markets and Monetary Trading," Purdue University Economics Working Papers 1179, Purdue University, Department of Economics.
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    7. White, Lawrence H, 1984. "Competitive Payments Systems and the Unit of Account," American Economic Review, American Economic Association, vol. 74(4), pages 699-712, September.
    8. 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.
    9. Camera, Gabriele & Winkler, Johannes, 2003. "International monetary trade and the law of one price," Journal of Monetary Economics, Elsevier, vol. 50(7), pages 1531-1553, October.
    10. Russell W. Cooper & Hubert Kempf., 2001. "Dollarization and the conquest of hyperinflation in divided societies," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 3-12.
    11. repec:cup:cbooks:9780521570916 is not listed on IDEAS
    12. Fernando Lefort & Klaus Schmidt-Hebbel, 2002. "Indexation, Inflation and Monetary Policy: An Overview," Central Banking, Analysis, and Economic Policies Book Series, in: Fernando Lefort & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Serie (ed.), Indexation, Inflation and MOnetary Policy, edition 1, volume 2, chapter 1, pages 001-018 Central Bank of Chile.
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