Synthetic commodity money

The conventional dichotomy of “commodity” and “fiat” base monies overlooks a third possibility that shares some features of each. This third type, which I call “synthetic commodity money,” resembles fiat money in having no nonmonetary value; but it resembles commodity money in being not just contingently but absolutely scarce. I discuss some actual examples of synthetic commodity monies, and then argue that special characteristics of synthetic commodity money are such as might allow such a money, if properly designed, to supply the foundation for a monetary regime that does not require oversight by any monetary authority, yet is able to provide for a high degree of macroeconomic stability.     

中国货币政策工具选择研究

本文在普勒规则研究的基础上进行适当扩展,对我国货币政策工具选择问题展开研究。通过研究本文发现:第一,货币政策工具的选择,与经济体所承受的冲击主要来自商品需求层面还是货币需求层面、货币需求主要来自商品市场还是货币市场以及总需求相对名义利率水平的弹性系数相关,而与社会福利损失函数中通货膨胀的厌恶系数、商品市场供给层面的诸变量(包括商品市场供给层面的冲击、商品供给曲线的斜率等)无关;第二,当经济体的所受冲击主要来自商品需求层面、市场货币需求主要来自商品市场、且货币政策对总需求的调节作用效果较小时,则货币当局采用数量型货币政策工具更有利于维护公众的社会福利;反之,则价格型货币政策操作更有利于维护公众的社会福利。     

Money with partially directed search

Partially directed search replaces the total randomness of monetary search models. Agents choose whether to stay in their production location or visit other locations. Each visiting agent randomly chooses one shop among many in each location. As in random matching models, a commodity or fiat object can endogenously become money, but the details are richer and conform better with evidence: any commodity can be money; the “best” commodity is the most likely money; fiat money can totally crowd out commodity money in an asymmetric environment; going shopping is more likely than door-to-door sales. The model nests Walrasian equilibria.     

The demonetization of gold: transactions and the change in control

Three models of a monetary economy are considered, in order to show the effects of a gold demonetization: the first with a gold money, the second with demonetized gold but no central bank, and the third with demonetized gold, but with a central bank. The distinctions between ownership and control are discussed. Our results show a gain in efficiency (in the case of “enough money”) when a switch is made from a durable commodity money to a fiat money. This is due to players being able to enjoy both the full service value of gold and transactions value of money—something that cannot be done in the original model with gold money. When we further add in the central bank, there is a somewhat further efficiency gain in the case of “not enough money”. We close the paper with a discussion of the usefulness of central banks.     

Does Bitcoin behave as a currency?: A standard monetary model approach

We derive the Bitcoin exchange rate dynamics by solving the exchange rate equation of the standard flexible-price monetary model to investigate any characteristics of Bitcoin like a currency. The dynamics is driven by an asymmetric mean-reverting fundamental shock which can be attributed to a money demand shock. A crash occurs when the exchange rate with a weakened mean-reverting force breaches a lower boundary where a smooth-pasting condition is imposed. The empirical results show the exchange rate dynamics can be calibrated according to the model, in which the mean reversion of the dynamics is positively co-integrated with the Bitcoin transaction volume indicating demand for Bitcoin; and with the risk reversals of the commodity currencies (Australian dollar and Canadian dollar) in currency option markets. The analysis shows that the Bitcoin exchange rate shares some characteristics of commodity currencies with crash risk. This suggests that Bitcoin behaves as a currency between fiat money and a crypto-commodity used for trading and investment purposes.     

Reserve requirements and optimal seigniorage

This note presents a model of optimizing agents who chose to hold deposits at financial intermediaries, which are required to hold fractional reserves of fiat money. When the stock of fiat money is expanded, the reserve requirement functions as a tax on deposits. The combination of reserve requirements and inflation results in a lower steady-state utility than a direct tax on deposits. The optimal monetary policy when reserves are required is to minimize reserve requirements and inflate without limit the stock of fiat money.     

Anticipated inflation and rates of return in a search-theoretic monetary model

How does anticipated inflation of fiat money affect the real return of a near money—an asset with real value used to mediate trades? This essay studies a search model in which decentralized trade takes place under a fixed bargaining rule. The essay analytically studies the comparative statics of a near money's real return as it varies with inflation. The effects diverge markedly over the parameter space. There exist parameters for which higher inflation lowers the real asset return, as suggested by asset substitution theories. There also exist parameters for which inflation has the opposite effect.     

Money demand interest elasticity and monetary policy effectiveness

This paper provides a theoretical basis for discretionary monetary policies being less effective as money demand is more sensitive to interest rates and less effective in checking recession than inflation. It cites speed of response as an important dimension of effectiveness in the policies, arguing that lagged responses diminish effectiveness by increasing prospects for destabilizing performances. It then illustrates how responses can be less rapid as money demand is more sensitive to interest rates and, providing that money demand interest sensitivity exceeds a threshold value, less rapid when the economy is short of full employment.     

Information, learning, and the stability of fiat money

We analyze the stability of monetary regimes in an economy where fiat money is endogenously created by the government, information about its value is imperfect, and learning is decentralized. We show that monetary stability depends crucially on the speed of information transmission in the economy. Our model generates a dynamic on the acceptability of fiat money that resembles historical accounts of the rise and eventual collapse of overissued paper money. It also provides an explanation of the fact that, despite its obvious advantages, the widespread use of fiat money is only a recent development.     

Revenue maximizing inflation

A classic monetary policy result is that revenue maximization entails setting the inflation tax rate equal to the inverse of the interest semi-elasticity of the demand for money. The standard approach underlying “Cagan's rule” is partial equilibrium in nature, treating money demand as being given from outside the model and abstracting from the real effects of inflation. This paper reconsiders the question of the revenue maximizing inflation rate in a general equilibrium framework with a labor-leisure choice, where money is held because it reduces transactions costs. In this framework, the revenue maximizing inflation tax rate is lower than that implied by Cagan's rule.     

Seigniorage,inflation, and reputation

This paper derives a reputational equilibrium for inflation in a model in which the sovereign obtains valuable seigniorage by issuing fiat money in exchange for real resources. With contemporaneous perception of actual sovereign behavior and immediate adjustment of real cash balances to new information, the Friedman elasticity solution for maximal seigniorage is a reputational equilibrium. More generally, the objective of maximal seigniorage produces an equilibrium inflation rate equal either to a generalization of the Friedman elasticity solution or to the rate at which the sovereign discounts future seigniorage adjusted for the growth rate, whichever is larger. The model formalizes the conjecture that inflation rates in excess of the Friedman solution are attributable to high discount rates for future seigniorage.     

Monetary rules and commodity money schemes under uncertainty

The paper sets out a simple monetary model and uses it to compare alternative monetary systems. Money may be either fiat or gold. Both gold supply and velocity are uncertain. Asset demands are derived from expected utility maximization. I demonstrate the basic argument against a commodity money — that it wastes resources, show why the optimal growth rate of money may be zero, and compare the behavior of the economy under constant money stock, constant price level, and constant gold price rules. Expected utility is typically highest under the constant price level rule.     

Optimal Monetary Policy in a Model of Money and Credit

We investigate the extent to which monetary policy can enhance the functioning of the private credit system. Specifically, we characterize the optimal return on money in the presence of credit arrangements. There is a dual role for credit: it allows buyers to trade without fiat money and also permits them to borrow against future income. However, not all traders have access to credit. As a result, there is a social role for fiat money because it allows agents to self‐insure against the risk of not being able to use credit in some transactions. We consider a (nonlinear) monetary mechanism that is designed to enhance the credit system. An active monetary policy is sufficient for relaxing credit constraints. Finally, we characterize the optimal monetary policy and show that it necessarily entails a positive inflation rate.     

外汇市场、股票市场及预期退货膨胀对货币需求的影响

本文利用2005年7月到2012年12月的月度数据,使用菲利普斯-奥肯曲线计算预期通货膨胀率,将汇率、股票市场以及预期通货膨胀率纳入货币需求函数模型,通过协整检验、VEC模型以及VAR模型,研究了汇率、股市以及通胀预期对实际货币需求的影响,结果发现汇率、股市收益率以及通胀预期对实际货币需求的影响具有统计显著性,但是影响程度很小。     

Has government any role in money?

Recent interest in monetary reform has been sparked by the emergence of a world irredeemable paper money system. In light of this interest, we review the current validity of four ‘good reasons’ Friedman advanced in 1960 to rationalize government intervention. We conclude that the forces that produced government involvement in the past will persist. Deregulation of financial intermediaries is desirable on grounds of market efficiency, though it is an open question whether government should continue as lender of last resort. We expect that the present world fiat money standard will neither degenerate into hyperinflation nor revert to a commodity standard.     

Demand for money in developing countries: Some theoretical and empirical results

This paper examines the role of credit restraint variables in the demand for money function for developing countries where interest rates are inoperative. A simultaneous equation model is proposed to allow for the interaction between these variables and the supply of money. Statistical results indicate that credit restraint variables in the demand for money function have stronger explanatory power than either the inflation rate or the real rate of return on money. The paper also deals with partial demand adjustment and adaptive expectations mechanisms with particular reference to the existence of credit rationing and substitution between money and real assets.     

Stock returns and inflation: The role of the monetary sector

This paper hypothesizes that the relation between stock returns and inflation is caused by the equilibrium process in the monetary sector. More importantly, these relations vary over time in a systematic manner depending on the influence of money demand and supply factors. Post-war evidence from the United States, Canada, the United Kingdom and Germany indicates that the negative stock return-inflation relations are caused by money demand and counter-cyclical money supply effects. On the other hand, pro-cyclical movements in money, inflation, and stock prices during the 1930's lead to relations which are either positive or insignificant.     

Monetary randomness and investment

This paper develops a neoclassical model in which the behavior of the money supply affects investment by affecting the real distribution of asset returns. Investment depends on wealthholders' demand for capital. A stochastic money growth rule influences portfolio choice by affecting the distribution of the inflation rate. The variance of inflation matters to wealthholders because of the existence of assets with returns that are not indexed to changes in the price level: money and bonds which are contracted in nominal terms. In a rational expectations environment, asset demands will thus be sensitive to the distribution of the money growth rate. Our principle conclusion is that an increase in the variance of the money growth rate lowers investment, which complements Tobin's (1965) result that an increase in the mean stimulates capital accumulation. The paper also represents a step toward incorporating an asset market into a macroeconomic model in a manner which takes account of Lucas' (1976) criticism of econometric policy evaluation. All variables in the model, including asset return distributions, are functions of technology, preferences and the money supply rule. Further, expectations are rational.     

Adaptive expectations,rational expectations,and money demand in hyperinflation Germany

In the recent literature Sargent and Wallace (IER, June, 1973) have estimated the demand equation for money in hyperinflation under the restriction that the adaptive formula of Phillip Cagan yields rational inflation expectations in the sense of John Muth. The present paper finds evidence to reject for the Germany case the proposition that adaptive expectations are rational. The procedure employed is basically to overfit the stochastic representation for the inflation rate implied by the ‘adaptive-is-rational’ hypothesis. The paper also puts forward and applies a two-step procedure to estimate the important money demand elasticity in hyperinflation. The procedure returns reasonable results with large estimated standard errors.     

The government's revenue from money creation and the inflationary effects of a decline in the rate of growth of G.N.P.

This paper studies the inflationary consequences of an exogenous decline in the rate of growth of G.N.P. The Government's insistance on keeping its revenue from money creation unaffected results in a compensating increase in the inflation tax, due to the loss of revenue stemming from the decline in growth. It is shown that the magnitude of the necessary compensating increase in the rate of inflation depends crucially on the specification of the demand for money. Based on a Cagan type demand for money, we present the inflationary consequences of a decline in the rate of growth for Israel, six O.E.C.D. countries, and Argentina.