On the Recognizability of Money

43 Pages Posted: 31 Oct 2007

See all articles by Richard Dutu

Richard Dutu

University of Waikato

Ed Nosal

Federal Reserve Banks - Federal Reserve Bank of Atlanta

Guillaume Rocheteau

Federal Reserve Bank of Cleveland; National University of Singapore (NUS)

Date Written: December 2005

Abstract

This paper develops a model of currency circulation under asymmetric information. Agents are heterogeneous and trade in bilateral matches. Coins are intrinsically valuable and are available in two weights, light and heavy. We characterize the equilibrium under complete information and under imperfect information about the quality of coins. We determine a set of conditions under which the two currencies circulate and are traded according to different terms of trade. We study how output, welfare, and the velocity of currency are affected by the recognizability of coins. We show that society's welfare increases as coins become more easily recognizable.

Keywords: commodity money, Gresham's law, search, informational asymmetries

JEL Classification: D80, E40

Suggested Citation

Dutu, Richard and Nosal, Ed and Rocheteau, Guillaume, On the Recognizability of Money (December 2005). FRB of Cleveland Working Paper No. 05-12. Available at SSRN: https://ssrn.com/abstract=1025479 or http://dx.doi.org/10.2139/ssrn.1025479

Richard Dutu

University of Waikato ( email )

Te Raupapa
Private Bag 3105
Hamilton, 3240
New Zealand

Ed Nosal (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

Guillaume Rocheteau

Federal Reserve Bank of Cleveland ( email )

PO Box 6387
Cleveland, OH 44101-1387
United States

National University of Singapore (NUS) ( email )

Bukit Timah Road 469 G
Singapore, 117591
Singapore

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