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Do You Mind if I Round?: Eliminating the Penny A Structural Analysis

Author

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  • Andrew Keinsley

    (Department of Economics, The University of Kansas)

Abstract

For decades, economists have debated the price-rounding effect on the economy if the penny is eliminated. Deviating from the bulk of the literature, which typically considers case-studies with empirical simulations and data manipulation, I evaluate a multiple household, deterministic model with endogenous currency production. My findings suggest that the elimination of the smallest unit of currency has a “nickel-and-dime” effect on the economy, regardless of the rounding policy. This structural model is constructed and calibrated to emulate a “worst-case scenario”, but it is also robust to the empirical results in the literature.

Suggested Citation

  • Andrew Keinsley, 2013. "Do You Mind if I Round?: Eliminating the Penny A Structural Analysis," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201309, University of Kansas, Department of Economics.
    • Handle: RePEc:kan:wpaper:201309
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    File URL: https://kuwpaper.ku.edu/2013Papers/201309.pdf
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    References listed on IDEAS

    as
    1. Ireland, Peter N., 2014. "The Macroeconomic Effects Of Interest On Reserves," Macroeconomic Dynamics, Cambridge University Press, vol. 18(6), pages 1271-1312, September.
    2. N. Gregory Mankiw, 2005. "The Savers-Spenders Theory of Fiscal Policy: Corrigendum," American Economic Review, American Economic Association, vol. 95(5), pages 1752-1752, December.
    3. Robert Whaples, 2007. "Time to Eliminate the Penny from the U.S. Coinage System: New Evidence," Eastern Economic Journal, Eastern Economic Association, vol. 33(1), pages 139-146, Winter.
    4. John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income, and Interest Rates: Reinterpreting the Time Series Evidence," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 185-246, National Bureau of Economic Research, Inc.
    5. Belongia, Michael T. & Ireland, Peter N., 2014. "The Barnett critique after three decades: A New Keynesian analysis," Journal of Econometrics, Elsevier, vol. 183(1), pages 5-21.
    6. Raymond E. Lombra, 2001. "Eliminating the Penny from the U.S. Coinage System: An Economic Analysis," Eastern Economic Journal, Eastern Economic Association, vol. 27(4), pages 433-442, Fall.
    7. Weber, Christian E, 2000. ""Rule-of-Thumb" Consumption, Intertemporal Substitution, and Risk Aversion," Journal of Business & Economic Statistics, American Statistical Association, vol. 18(4), pages 497-502, October.
    8. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
    9. William A. Barnett, 2000. "The User Cost of Money," Contributions to Economic Analysis, in: The Theory of Monetary Aggregation, pages 6-10, Emerald Group Publishing Limited.
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    Cited by:

    1. Doron Sayag & Avichai Snir & Daniel Levy, 2012. "0.001% and Counting: Revisiting the Price Rounding Tax," Post-Print hal-05349980, HAL.

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    More about this item

    Keywords

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    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy

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