Modeling denomination structures

Manjong Lee, Neil Wallace, Tao Zhu

Research output: Contribution to journalReview articlepeer-review

27 Scopus citations

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 languageEnglish (US)
Pages (from-to)949-960
Number of pages12
JournalEconometrica
Volume73
Issue number3
DOIs
StatePublished - May 1 2005

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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