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Creator: Velde, François R., Weber, Warren E., and Wright, Randall D. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 215 Abstract:
We develop a model of commodity money and use it to analyze the following two questions motivated by issues in monetary history: What are the conditions under which Gresham’s Law holds? And, what are the mechanics of a debasement (lowering the metallic content of coins)? The model contains light and heavy coins, imperfect information, and prices determined via bilateral bargaining. There are equilibria with neither, both, or only one type of coin in circulation. When both circulate, coins may trade by weight or by tale. We discuss the extent to which Gresham’s Law holds in the various cases. Following a debasement, the quantity of reminting depends on the incentives offered by the sovereign. Equilibria exist with positive seigniorage and a mixture of old and new coins in circulation.
Parola chiave: Commodity money, Gresham's Law, Debasement, Asymmetric information, and Random matching Soggetto: E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems and N10 - Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: General, International, or Comparative