IDEAS home Printed from https://ideas.repec.org/p/red/sed005/9.html
   My bibliography  Save this paper

On the Coexistence of Money and Bonds

Author

Listed:
  • David Andolfatto

Abstract

This paper re-examines the so-called coexistence puzzle in terms of a modified version of the legal restrictions hypothesis initially put forth by Bryant and Wallace (1980). The modification is in terms of dropping a questionable assumption in the original hypothesis; i.e., that large denomination government bonds cannot be intermediated by private banks. This restriction is replaced by one that is arguably more palatable; i.e., that the intermediated monetary instruments created by private banks are not universally acceptable as payment for all exchanges (unlike government money). The friction that gives rise to this latter restriction is one that is commonly employed in monetary models where fiat money is essential for exchange.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • David Andolfatto, 2005. "On the Coexistence of Money and Bonds," 2005 Meeting Papers 9, Society for Economic Dynamics.
  • Handle: RePEc:red:sed005:9
    as

    Download full text from publisher

    File URL: https://www.red-files-public.s3.amazonaws.com/meetpapers/2005/paper_9.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Gabriele Camera & Charles Noussair & Steven Tucker, 2003. "Rate-of-return dominance and efficiency in an experimental economy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 22(3), pages 629-660, October.
    2. Rao Aiyagari, S. & Wallace, Neil & Wright, Randall, 1996. "Coexistence of money and interest-bearing securities," Journal of Monetary Economics, Elsevier, vol. 37(3), pages 397-419, June.
    3. Makinen, Gail E & Woodward, G Thomas, 1986. "Some Anecdotal Evidence Relating to the Legal Restrictions Theory of the Demand for Money," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 260-265, April.
    4. White, Lawrence H, 1987. "Accounting for Non-interest-Bearing Currency: A Critique of the Legal Restrictions Theory of Money," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(4), pages 448-456, November.
    5. Neil Wallace, 1983. "A legal restrictions theory of the demand for \\"money\\" and the role of monetary policy," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 7(Win).
    6. John Bryant & Neil Wallace, 1980. "A suggestion for further simplifying the theory of money," Staff Report 62, Federal Reserve Bank of Minneapolis.
    7. Robert B. Litterman, 1982. "Optimal control of the money supply," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 6(Fall).
    8. Arthur J. Rolnick & Warren E. Weber, 1982. "Free banking, wildcat banking, and shinplasters," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 6(Fall).
    9. Andolfatto, David & Nosal, Ed, 2009. "Money, intermediation, and banking," Journal of Monetary Economics, Elsevier, vol. 56(3), pages 289-294, April.
    10. Cowen, Tyler & Kroszner, Randall, 1989. "Scottish Banking before 1845: A Model for Laissez-Faire?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(2), pages 221-231, May.
    11. Richard C.K.Burdekin & Marc D.Weidenmier, 2002. "Interest-Bearing Currency and Legal Restrictions Theory:Lessons from the Southern Confederacy," Cato Journal, Cato Journal, Cato Institute, vol. 22(2), pages 199-209, Fall.
    12. Bruce Smith, 2003. "Taking intermediation seriously," Proceedings, Federal Reserve Bank of Cleveland, pages 1319-1377.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Deep money, the coexistence puzzle, and the legal restrictions hypothesis
      by JP Koning in Moneyness on 2014-05-24 08:31:00

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ricardo Lagos, 2010. "Moneyspots," 2010 Meeting Papers 498, Society for Economic Dynamics.
    2. Ferraris, Leo & Mattesini, Fabrizio, 2014. "Limited commitment and the legal restrictions theory of the demand for money," Journal of Economic Theory, Elsevier, vol. 151(C), pages 196-215.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Richard C. K. Burdekin & Marc D. Weidenmier, 2008. "Can Interest‐Bearing Money Circulate? A Small‐Denomination Arkansan Experiment, 1861–63," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(1), pages 233-241, February.
    2. Ferraris, Leo & Mattesini, Fabrizio, 2014. "Limited commitment and the legal restrictions theory of the demand for money," Journal of Economic Theory, Elsevier, vol. 151(C), pages 196-215.
    3. Tarkka, Juha, 1994. "Risk sharing in the pricing of payment services by banks," Research Discussion Papers 18/1994, Bank of Finland.
    4. Rao Aiyagari, S. & Wallace, Neil & Wright, Randall, 1996. "Coexistence of money and interest-bearing securities," Journal of Monetary Economics, Elsevier, vol. 37(3), pages 397-419, June.
    5. Giuseppe Mastromatteo & Luigi Ventura, 2007. "The origin of money: A survey of the contemporary literature," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 54(2), pages 195-224, June.
    6. Eduardo A. Morón, 1992. "La demanda por múltiples monedas: un enfoque de portafolio," Apuntes. Revista de ciencias sociales, Fondo Editorial, Universidad del Pacífico, vol. 19(31), pages 19-28.
    7. Rojas Breu, Mariana, 2017. "Debt enforcement and the value of money," Journal of Economic Theory, Elsevier, vol. 168(C), pages 237-251.
    8. Boettke Peter, 1990. "The Political Economy Of Utopia : Communism In Soviet Russia, 1918–1921," Journal des Economistes et des Etudes Humaines, De Gruyter, vol. 1(2), pages 91-138, June.
    9. Kim, Young Sik & Lee, Manjong, 2012. "Intermediary cost and coexistence puzzle," Economics Letters, Elsevier, vol. 117(1), pages 142-145.
    10. Young Sik Kim & Manjong Lee, 2009. "Wealth Distribution, Inflation Tax, and Societal Benefits of Illiquid Bonds," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(5), pages 809-830, August.
    11. repec:dau:papers:123456789/11496 is not listed on IDEAS
    12. Shouyong Shi, 2006. "Welfare Improvement from Restricting the Liquidity of Nominal Bonds," Working Papers tecipa-212, University of Toronto, Department of Economics.
    13. Ed Nosal & Guillaume Rocheteau, 2006. "The economics of payments," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Feb.
    14. Bodenhorn, Howard, 2008. "Free banking and bank entry in nineteenth-century New York," Financial History Review, Cambridge University Press, vol. 15(2), pages 175-201, October.
    15. Ricardo Lagos, 2013. "Moneyspots: Extraneous Attributes and the Coexistence of Money and Interest-Bearing Nominal Bonds," Journal of Political Economy, University of Chicago Press, vol. 121(1), pages 127-185.
    16. Zhu, Tao & Wallace, Neil, 2007. "Pairwise trade and coexistence of money and higher-return assets," Journal of Economic Theory, Elsevier, vol. 133(1), pages 524-535, March.
    17. repec:zbw:bofrdp:1994_018 is not listed on IDEAS
    18. Ding, Shuze & Puzzello, Daniela, 2020. "Legal restrictions and international currencies: An experimental approach," Journal of International Economics, Elsevier, vol. 126(C).
    19. Théret, Bruno, 2011. "Du keynésianisme au libertarianisme.La place de la monnaie dans les transformations du savoir économique autorisé," Revue de la Régulation - Capitalisme, institutions, pouvoirs, Association Recherche et Régulation, vol. 10.
    20. Bentour, El Mostafa, 2013. "Oil Prices, Drought Periods and Growth Forecasts in Morocco," MPRA Paper 52892, University Library of Munich, Germany.
    21. Marcet, Albert & Obiols-Homs, Francesc & Weil, Philippe, 2007. "Incomplete markets, labor supply and capital accumulation," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2621-2635, November.
    22. Maciejczak, Mariusz, 2015. "Will the institution of coexistence be re-defined by TTIP?," GMCC-15: Seventh GMCC, November 17-20, 2015, Amsterdam, the Netherlands 211478, International Conference on Coexistence between Genetically Modified (GM) and non-GM based Agricultural Supply Chains (GMCC).

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:sed005:9. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Zimmermann (email available below). General contact details of provider: https://edirc.repec.org/data/sedddea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.