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On the Coexistence of Money and Bonds

  • David Andolfatto

    ()

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.

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File URL: http://repec.org/sed2005/up.15007.1098824906.pdf
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Paper provided by Society for Economic Dynamics in its series 2005 Meeting Papers with number 9.

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Date of creation: 2005
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Handle: RePEc:red:sed005:9
Contact details of provider: Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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  1. Robert B. Litterman, 1983. "Optimal control of the money supply," Staff Report 82, Federal Reserve Bank of Minneapolis.
  2. 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, issue Win.
  3. S. Rao Aiyagari & Neil Wallace & Randall Wright, 1996. "Coexistence of money and interest-bearing securities," Working Papers 550, Federal Reserve Bank of Minneapolis.
  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 448-56, November.
  5. John Bryant & Neil Wallace, 1980. "A suggestion for further simplifying the theory of money," Staff Report 62, Federal Reserve Bank of Minneapolis.
  6. Andolfatto, David, 2008. "Money, Intermediation, and Banking," MPRA Paper 7321, University Library of Munich, Germany.
  7. 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.
  8. 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 260-65, April.
  9. 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 221-31, May.
  10. Camera, G. & Noussair, C. & Tucker, S., 2000. "Rate-of-Return Dominance and Efficiency in an Experimental Economy," Purdue University Economics Working Papers 1135, Purdue University, Department of Economics.
  11. Arthur J. Rolnick & Warren E. Weber, 1982. "Free banking, wildcat banking, and shinplasters," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
  12. Bruce D. Smith, 2003. "Taking intermediation seriously," Proceedings, Federal Reserve Bank of Cleveland, pages 1319-1377.
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