The Great Capitol Hill Baby Sitting Co-Op: Anecdote or Evidence for the Optimum Quantity of Money?
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
Bielefeld University - Center for Mathematical Economics
June 6, 2006
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.
Number of Pages in PDF File: 43
Keywords: Microeconomic foundation of money, optimum quantity of money, experimental monetary economics
JEL Classification: C73, C92, E41
Date posted: June 22, 2006 ; Last revised: November 21, 2011