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Working Paper
A model of (the threat of) counterfeiting
A simple matching-model of money with the potential for counterfeiting is constructed. In contrast to the existing literature, counterfeiting, if it occurred, would be accompanied by two distortions: costly production of counterfeits and harmful effects on trade. However, application of the Cho-Kreps refinement is shown to imply that there is no equilibrium with counterfeiting. If the cost of producing counterfeits is low enough, then there is no monetary equilibrium. Otherwise, there is a monetary equilibrium without counterfeiting.
Report
A hybrid fiat-commodity monetary system
In this paper I describe a ?monetary? system in which backing is provided for the government?s liabilities by way of contingent resort to taxes. The system has some of the features of a commodity money system with a large seignorage spread between bid and ask prices. It is studied within the context of a one-good, pure exchange model of two-period-lived overlapping generations in which, aside from various uniform boundedness assumptions, considerable diversity is allowed both within and across generations. Two results are established: (i) the existence of at least one perfect foresight ...
Journal Article
A suggestion for oversimplifying the theory of money
This paper, originally published in 1988, argues that there is nothing special about government-issued money, that without restrictions of some kind, privately issued money would be a perfect substitute for it. The paper describes the type of intermediation this argument implies for a laissez-faire economy. One important implication is that there would be only one risk-adjusted rate of return; either all assets would pay a low return to match that on money, or money would pay interest. Another important implication is that open market operations would be irrelevant. The paper argues that the ...
Journal Article
Narrow banking meets the Diamond-Dybvig model
A version of the Diamond-Dybvig model of banking is used to evaluate the narrow banking proposal, the idea that banks should be required to back demand deposits entirely by safe short-term assets. It is shown that the mere existence of an amount of safe short-term assets outside the banking system that exceeds banking system liabilities does not make the proposal either innocuous or desirable. In fact, despite such existence, using narrow banking to cope with banking system illiquidity eliminates the role of the banking system.
Working Paper
Identification and estimation of a model of hyperinflation with a continuum of "sunspot" equilibrium
This paper constructs a model with two structural equations: the Government budget constraint and a linear version of Cagan's portfolio balance equation. The model contains a continuum of equilibria with "sunspot equilibria." Closed forms for the solutions are found. Even though there is a continuum of equilibria, the model is overidentified econometrically, so that the model restricts time series data on price levels and currency stocks. We describe how the free parameters of the model can be estimated, including some parameters that serve to index particular members of the continuum of ...
Report
On simplifying the theory of fiat money
This paper argues that versions of Samuelson/Cass-Yaari overlapping-generations consumption-loans models ought to be taken seriously as models of fiat money. The case is made by summarizing and interpreting what these models have to say about fiat money and by arguing that these properties are robust in the sense that they can be expected to hold in any model of fiat money. ; Two of the properties establish the connection between, on the one hand, the existence of equilibria of which value is attached to a fixed stock of fiat money and, on the other hand, the optimality of such equilibria and ...
Conference Paper
Inside and outside money as alternative media of exchange
Journal Article
A dictum for monetary theory
A dictum for monetary theory; This essay argues that monetary theories should not contain an undefined object labeled money. Among existing theories that do not satisfy that dictum are models which assume that real balances are arguments of utility or production functions and models which assume cash-in-advance constraints. A main weakness of theories that do not satisfy the dictum is that they cannot address questions about which objects constitute money. Theories that do satisfy the dictum are those which specify assets by their physical properties and which permit the assets_ role in ...