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One or Two Monies?

Author

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  • Janet Hua, Jiang
  • Mei, Dong

Abstract

We investigate whether money constitutes a perfect substitute for the missing record-keeping technology in a quasi-linear environment, where private information and limited commitment are present. We adopt the mechanism design approach and solve a social planner�s problem subject to the resource constraint, the incentive constraints imposed by the existing frictions, and the available memory technologies. The result is that when money is divisible, concealable and in variable supply, a single money may or may not be su¢ cient to replace the record-keeping technology. We further show that two monies serve as a perfect substitute for the record-keeping technology so that there is no need for a third money.

Suggested Citation

  • Janet Hua, Jiang & Mei, Dong, 2008. "One or Two Monies?," MPRA Paper 14846, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:14846
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    References listed on IDEAS

    as
    1. Kocherlakota, Narayana R., 1998. "Money Is Memory," Journal of Economic Theory, Elsevier, vol. 81(2), pages 232-251, August.
    2. Ricardo Lagos & Randall Wright, 2005. "A Unified Framework for Monetary Theory and Policy Analysis," Journal of Political Economy, University of Chicago Press, vol. 113(3), pages 463-484, June.
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    4. Camera, Gabriele & Craig, Ben & Waller, Christopher J., 2004. "Currency competition in a fundamental model of money," Journal of International Economics, Elsevier, vol. 64(2), pages 521-544, December.
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    6. University of Notre Dame & Christopher Waller, 2008. "Dynamic Taxation, Private Information and Money," 2008 Meeting Papers 896, Society for Economic Dynamics.
    7. anonymous, 1998. "Technological role of fiat money," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum.
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    9. Ostroy, Joseph M, 1973. "The Informational Efficiency of Monetary Exchange," American Economic Review, American Economic Association, vol. 63(4), pages 597-610, September.
    10. David Andolfatto, 2011. "The simple analytics of money and credit in a quasi-linear environment," Working Papers 2011-038, Federal Reserve Bank of St. Louis.
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    14. Craig, Ben & Waller, C.J.Christopher J., 2004. "Dollarization and currency exchange," Journal of Monetary Economics, Elsevier, vol. 51(4), pages 671-689, May.
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    More about this item

    Keywords

    Record-keeping; Money; Private Information; Limited Commit- ment; Mechanism Design;

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

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