Search Results
Working Paper
The evolution of small change
Western Europe was plagued with currency shortages from the 14th to the 19th century, at which time a `standard formula' had been devised to cure the problem. We document the evolution of mon- etary theory, policy experiments and minting tech- nology over the course of six hundred years. In a companion paper, we use a cash-in-advance model of commodity money to provide an analytical frame- work for the problem of small change.
Journal Article
An alternative measure of inflation
The author proposes an alternative measure of inflation that captures the intuition behind the use of "core" measures. Inflation is modeled as an unobserved factor affecting the components of an aggregate price index (including food and energy). The common component, estimated using Kalman filtering, resembles usual measures of core inflation; its extrapolation can be used to improve performance in forecasting core inflation.
Working Paper
The Neapolitan Banks in the Context of Early Modern Public Banks
I examine the Neapolitan public banks, a group of non-profit institutions that emerged in the late sixteenth century, in the context of the early public banks that existed elsewhere in early modern Europe. In terms of size and stability they compare well with their peers, in spite of a difficult political and economic environment. They were also remarkably financially advanced for their time. Their success is likely due to their ownership structure, governance, and well managed relationship with the monarchical authorities.
Working Paper
What Happened to the US Economy During the 1918 Influenza Pandemic? A View Through High-Frequency Data
Burns and Mitchell (1946, 109) found a recession of "exceptional brevity and moderate amplitude." I confirm their judgment by examining a variety of high-frequency data. Industrial output fell sharply but rebounded within months. Retail seemed little affected and there is no evidence of increased business failures or stressed financial system. Cross-sectional data from the coal industry documents the short-lived impact of the epidemic on labor supply. The Armistice possibly prolonged the 1918 recession, short as it was, by injecting momentary uncertainty. Interventions to hinder the contagion ...
Working Paper
Lottery Loans in the Eighteenth Century
In the 18th century Britain frequently issued lottery loans, selling bonds whose size was determined by a draw soon after the sale. The probability distribution was perfectly known ex-ante and highly skewed. After the draw the bonds were identical (except for size) and indistinguishable from regular bonds. I collect market prices for the lottery tickets and show that investors were paying a substantial premium to be exposed to this purely artificial risk. I show that investors were well-to-do and included many merchants and bankers. I turn to cumulative prospect theory to make sense of these ...
Working Paper
The big problem of small change
Western Europe was plagued with currency shortages from the 14th century, at which a 'standard formula' had been devised to cure the problem. We use a cash-in-advance model of commodity money to define a currency shortage, show that they could develop and persist under commodity money regime, and analyze the role played by each ingredient in the standard formula. A companion paper documents the evolution of monetary theory, monetary experiments and minting technology over the course of six hundred years.
Working Paper
A model of commodity money, with applications to Gresham's Law and the debasement puzzle
We develop a model of commodity money and use it to analyze the following two questions motivated by issues in monetary history: What are the conditions under which Gresham's Law holds? And, what are the mechanics of a debasement (lowering the metallic content of coins)? The model contains light and heavy coins, imperfect information, and prices determined via bilateral bargaining. There are equilibria with neither, both, or only one type of coin in circulation. When both circulate, coins may trade by weight or by tale. We discuss the extent to which Gresham's Law holds in the various cases. ...
Working Paper
Why Have Interest Rates Fallen Far Below the Return on Capital
Risk-free rates have been falling since the 1980s while the return on capital has not. We analyze these trends in a calibrated OLG model with recursive preferences, designed to encompass many of the "usual suspects'' cited in the debate on secular stagnation. Declining labor force and productivity growth imply a limited decline in real interest rates and deleveraging cannot account for the joint decline in the risk free rate and increase in the risk premium. If we allow for a change in the (perceived) risk to productivity growth to fit the data, we find that the decline in the risk-free rate ...
Working Paper
Early Public Banks
Publicly owned or commissioned banks were common in Europe from the 15th century. This survey argues that while the early public banks were characterized by great experimentation in their design, a common goal was to create a liquid and reliable monetary asset in environments where such assets were rare or unavailable. The success of these banks was, however, never guaranteed, and even well-run banks could become unstable over time as their success made them susceptible to fiscal exploitation. The popularization of bearer notes in the 18th century broadened the user base for the public banks' ...
Working Paper
A model of bimetallism
Bimetallism has been the subject of considerable debate: Was it a viable monetary system? Was it a desirable system? In our model, the (exogenous and stochastic) amount of each metal can be split between monetary uses to satisfy a cash-in-advance constraint, and nonmonetary uses in which the stock of uncoined metal yields utility. The ratio of the monies in the cash-in-advance constraint is endogenous. Bimetallism is feasible: we find a continuum of steady states (in the certainty case) indexed by the constant exchange rate of the monies; we also prove existence for a range of fixed exchange ...