Abstract
Previous work on the denomination structure of currency treats as exogenous the distribution of transactions and the denominations held by people. Here, by way of a matching model, both are endogenous. In the model, trades in pairwise meetings alternate in time with the opportunity to freely choose a portfolio of denominations and there is a trade-off between the benefits of small-denomination money for transacting and the costliness of carrying a large quantity of small-denomination money. For a given denomination structure, a monetary steady state is shown to exist. The model implies that too small denominations are abandoned.
Original language | English |
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Pages (from-to) | 949-960 |
Number of pages | 12 |
Journal | Econometrica |
Volume | 73 |
Issue number | 3 |
DOIs | |
Publication status | Published - 2005 May |
Keywords
- Currency
- Denominations
- Matching model
ASJC Scopus subject areas
- Economics and Econometrics