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Unit of Account, Medium of Exchange, and Prices

Author

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  • Young Sik Kim

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

  • Manjong Lee

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

Abstract

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.

Suggested Citation

  • Young Sik Kim & Manjong Lee, 2011. "Unit of Account, Medium of Exchange, and Prices," Discussion Paper Series 1104, Institute of Economic Research, Korea University.
    • Handle: RePEc:iek:wpaper:1104
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    File URL: http://econ.korea.ac.kr/~ri/WorkingPapers/w1104.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    debasement; medium of exchange; unit of account; nominal price rigidity;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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