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Do You Mind if I Round?: Eliminating the Penny A Structural Analysis

Andrew Keinsley ()

No 201309, WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS from University of Kansas, Department of Economics

Abstract: For decades, economists have debated the price-rounding effect on the economy if the penny is eliminated. Deviating from the bulk of the literature, which typically considers case-studies with empirical simulations and data manipulation, I evaluate a multiple household, deterministic model with endogenous currency production. My findings suggest that the elimination of the smallest unit of currency has a “nickel-and-dime” effect on the economy, regardless of the rounding policy. This structural model is constructed and calibrated to emulate a “worst-case scenario”, but it is also robust to the empirical results in the literature.

Keywords: Penny; Rounding Policy; Deterministic Model; Treasury Policy; Currency; Multiple Household Model (search for similar items in EconPapers)
JEL-codes: E41 E42 E61 E62 E63 E64 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2013-10
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Persistent link: http://EconPapers.repec.org/RePEc:kan:wpaper:201309

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