A search-theoretic model of legal and illegal currency

Curtis, Elisabeth Soller; Waller, Christopher J.

doi:10.1016/s0304-3932(99)00042-2

Cited by 51 publications

(10 citation statements)

References 8 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…There is much discussion of the failure of the purchasing power parity (PPP) hypotheses, and in particular, of the finding that when market 1 Other papers with two-country search models include Zhou (1997) and Soller-Curtis and Waller (2000), who also assume prices are exogenous. For a review of the general literature on international currencies, and on the topic of currency substitution more generally, see Giovannini and Turtelboom (1992).…”

Section: Introductionmentioning

confidence: 99%

International Currency

Wright

Trejos²

2001

Topics in Macroeconomics

View full text Add to dashboard Cite

We develop a two-country, two-currency, search-theoretic model of monetary exchange, extending previous such models by endogenizing prices using bargaining theory. We analyze features of the environment that make it more likely that a given money circulates internationally. We show the value of a given currency rises if it circulates abroad, and falls if foreign money circulates locally. Also, we show that international monies have more value at home than abroad. These results help to explain the otherwise anomalous observation that the US dollar is an outlier in the empirical relationship between income and PPP deflators.

show abstract

Section: Introductionmentioning

confidence: 99%

International Currency

Wright

Trejos²

2001

Topics in Macroeconomics

View full text Add to dashboard Cite

show abstract

“…It is possible to model it as a fine paid in real goods produced by the offender, as in Soller-Curtis and Waller (2000). 22 If τ = 1 was allowed, the only way to keep production incentive-compatible would have been to tax only a fraction of…”

mentioning

confidence: 99%

The tax-foundation theory of fiat money

Goldberg

2010

Econ Theory

View full text Add to dashboard Cite

Throughout modern history governments have tried to promote the general acceptance of their unbacked paper currencies. One of the most common devices has been legal tender laws that have assured the acceptance of these currencies as tax payments. Economic theory has largely ignored this mechanism, except for the static models of Ross Starr (Econometrica 1974, Economic Theory 2003. I provide the first dynamic model of this mechanism, thus showing explicitly the medium of exchange role of money, accounting for expectations about the government's survival, and enabling more realistic taxation systems. I show that whether competing with other paper moneys, commodity moneys, or checks, a stable government can promote its currency by refusing to accept the other objects in tax payments. While this mechanism has similarities to convertibility, it differs from it on a critical aspect: With this mechanism the government can often keep its favorite money in circulation even while increasing its quantity and thus causing it to decrease in value. This opens the door for a successful inflationary policy.

show abstract

“…1 In the equilibrium with π ∈ (0, 1) we say that money is partially acceptable, or the economy is partially monetized. While the mixed-strategy equilibrium has been used in several applications in the literature (e.g., Kiyotaki and Wright [7]; Soller-Curtis and Waller [13]), we argue here that such equilibria should not be taken seriously.…”

Section: Introductionmentioning

confidence: 88%

A simple search model of money with heterogeneous agents and partial acceptability

Shevchenko

Wright

2004

Economic Theory

View full text Add to dashboard Cite

Simple search models have equilibria where some agents accept money and others do not. We argue such equilibria should not be taken seriously. This is unfortunate if one wants a model with partial acceptability. We introduce heterogeneous agents and show partial acceptability arises naturally and robustly. There can be multiple equilibria with different degrees of acceptability. Given the type of heterogeneity we allow, the model is simple: equilibria reduce to fixed points in [0,1]. We show that with other forms of heterogeneity equilibria are fixed points in set space, and there is no method to reduce this to a problem in R 1 . Copyright Springer-Verlag Berlin/Heidelberg 2004Money, Search, Acceptability.,

show abstract

A search-theoretic model of legal and illegal currency

Cited by 51 publications

References 8 publications

International Currency

International Currency

The tax-foundation theory of fiat money

A simple search model of money with heterogeneous agents and partial acceptability

Contact Info

Product

Resources

About