Sufficiency of an Outside Bank and a Default Penalty to Support the Value of Fiat Money: Experimental Evidence

59 Pages Posted: 16 Jul 2014

See all articles by Juergen Huber

Juergen Huber

University of Innsbruck; University of Vienna - Department of Finance

Martin Shubik

Yale University - School of Management; Yale University - Cowles Foundation

Shyam Sunder

Yale University - School of Management; Yale University - Cowles Foundation

Multiple version iconThere are 2 versions of this paper

Date Written: July 14, 2014

Abstract

We present a model in which an outside bank and a default penalty support the value of fiat money, and experimental evidence that the theoretical predictions about the behavior of such economies, based on the Fisher-condition, work reasonably well in a laboratory setting. The import of this finding for the theory of money is to show that the presence of a societal bank and default laws provide sufficient structure to support the use of fiat money and use of the bank rate to influence inflation or deflation, although other institutions could provide alternatives.

Keywords: Experimental gaming, Bank, Fiat money, Outside bank, General equilibrium

JEL Classification: C73, C91

Suggested Citation

Huber, Juergen and Shubik, Martin and Sunder, Shyam, Sufficiency of an Outside Bank and a Default Penalty to Support the Value of Fiat Money: Experimental Evidence (July 14, 2014). Cowles Foundation Discussion Paper No. 1675RR. Available at SSRN: https://ssrn.com/abstract=2465917 or http://dx.doi.org/10.2139/ssrn.2465917

Juergen Huber (Contact Author)

University of Innsbruck ( email )

Universitätsstraße 15
Innsbruck, Innsbruck 6020
Austria

University of Vienna - Department of Finance ( email )

Bruenner Strasse 72
Vienna, 1210
Austria

Martin Shubik

Yale University - School of Management ( email )

Box 208200
New Haven, CT 06520-8200
United States

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States
203-432-3694 (Phone)
203-432-6167 (Fax)

HOME PAGE: http://cowles.econ.yale.edu/P/au/d_shubik.htm

Shyam Sunder

Yale University - School of Management ( email )

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-6160 (Phone)

HOME PAGE: http://www.som.yale.edu/faculty/sunder/

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

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