The Great Capitol Hill Baby Sitting Co-Op: Anecdote or Evidence for the Optimum Quantity of Money?

43 Pages Posted: 22 Jun 2006 Last revised: 21 Nov 2011

Thorsten Hens

University of Zurich - Department of Banking and Finance; Norwegian School of Economics and Business Administration (NHH); Swiss Finance Institute (Zurich Center)

Klaus Reiner Schenk-Hoppé

University of Manchester - Department of Economics; Norwegian School of Economics (NHH) - Department of Finance

Bodo Vogt

Bielefeld University - Center for Mathematical Economics

Date Written: June 6, 2006

Abstract

This paper studies a centralized market with idiosyncratic uncertainty and money as a medium of exchange from a theoretical as well as an experimental perspective. In our model, prices are fixed and markets are cleared by rationing. We prove the existence of stationary monetary equilibria and of an optimum quantity of money. The rational solution of our model, which is based on the assumption of individual rationality and rational expectations, is compared with actual behavior in a laboratory experiment. The theoretical results are strongly supported by this experiment.

Keywords: Microeconomic foundation of money, optimum quantity of money, experimental monetary economics

JEL Classification: C73, C92, E41

Suggested Citation

Hens, Thorsten and Schenk-Hoppé, Klaus Reiner and Vogt, Bodo, The Great Capitol Hill Baby Sitting Co-Op: Anecdote or Evidence for the Optimum Quantity of Money? (June 6, 2006). Available at SSRN: https://ssrn.com/abstract=910860 or http://dx.doi.org/10.2139/ssrn.910860

Thorsten Hens

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse 32
Zurich, 8032
Switzerland
+41-44 634 37 06 (Phone)

Norwegian School of Economics and Business Administration (NHH)

Helleveien 30
Bergen, 5045
Norway

Swiss Finance Institute (Zurich Center)

c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland

Klaus Reiner Schenk-Hoppé (Contact Author)

University of Manchester - Department of Economics ( email )

Arthur Lewis Building
Oxford Road
Manchester, M13 9PL
United Kingdom

Norwegian School of Economics (NHH) - Department of Finance ( email )

Helleveien 30
N-5045 Bergen
Norway

Bodo Vogt

Bielefeld University - Center for Mathematical Economics ( email )

Postfach 10 01 31
Bielefeld, D-33501
Germany

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