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Journal Article
Resolving the national bank note paradox
During the 1882_1914 period, U.S. national banks could issue circulating notes backed by specified government securities. Earlier attempts to explain yields on those securities by costs of note issue discovered a paradox: yields were too high. We point out two previously ignored sources of costs: idle notes and note redemptions that were highly variable, thereby exacerbating the problem of managing reserves. We present data on idle notes and estimate, from partial data on redemptions, the uncertainty due to redemptions. We also present a semiannual time series of an upper bound on the average ...
Journal Article
International monetary reform: the feasible alternatives
Working Paper
Short-run and long-run effects of changes in money in a random matching model
Using an existing random matching model of money, I show that a once-for-all change in the quantity of money has short-run effects that are predominantly real and long-run effects that are in the direction of being predominantly nominal provided (i) the quantity of money is random and (ii) people learn about what happened to it only with a lag. The change in the quantity of money comes about through a random process of discovery that does not permit anyone to deduce the aggregate amount discovered when the change actually occurs.
Working Paper
Optimal allocations with incomplete record-keeping and no commitment
We study a random-matching, absence-of-double-coincidence environment in which people cannot precommit and in which there are two imperfect ways of keeping track of what other people have done in the past: money and a public record of all past actions that is updated with an average lag. We study how the magnitude of that lag affects the allocations that are optimal from among allocations that are stationary and feasible and that satisfy incentive constraints which arise from the absence of commitment and the imperfect ways of keeping track of what others have done in the past.
Report
The real bills doctrine vs. the quantity theory: a reconsideration
On our interpretation, real bills advocates favor unfettered intermediation, while their critics, who we call quantity theorists, favor legal restrictions on intermediation geared to separate ?money? from ?credit.? We display examples of economies in which quantity-theory assertions about ?money-supply? and price-level behavior under the real bills regime are valid. In particular, both the price level and an asset total that quantity theorists would identify as money fluctuate more under a real bills regime than under a regime with restrictions like those favored by quantity theorists. ...
Report
Portfolio autarky: a welfare analysis
Portfolio autarky obtains when residents of every country are prohibited from owning real assets located in other countries. Such a regime and a laissez-faire regime, both characterized by free trade in goods, are studied in a model whose resource and technology assumptions are those of the standard two-country, two- (nonreproducible) factor, two- (nonstorable) good model. But to ensure a market for assets (land), the model is peopled by overlapping generations; each two-period lived individual supplies one unit of labor only in the first period of his life. Unique equilibria are described ...
Report
Interest rates under the U.S. national banking system
According to previous studies, the demand-liability feature of national bank notes did not present a problem for note-issuing banks because the nonbank public treated notes and other currency as perfect substitutes. However, that view, when combined with nonbindingness of the collateral restriction against note issue, itself an implication of the fact that some eligible collateral was not used for that purpose, implies that the safe short-term interest rate is pegged at the tax rate on note circulation. Since evidence on short-term interest rates is inconsistent with such a peg, that view ...
Journal Article
An Attractive Monetary Model with Surprising Implications for Optima: Two Examples
Ex ante optima are described for two examples of a monetary model with random meetings, some perfectly monitored people, and some nonmonitored people. One example describes optimal inflation, the other optimal seasonal policy. Although the numerical examples are arbitrary in most respects, the results are consistent with three general conclusions: if the model is known, then intervention is desirable; even the qualitative aspects of optimal intervention are not obvious; and optimal intervention depends on the details of the model. The results are therefore reminiscent of the conclusions of ...