Money, unit of account, and nominal rigidity

Young Sik Kim and Manjong Lee

Economics Letters, 2017, vol. 160, issue C, 59-63

Abstract: In order to characterize the properties required to fulfill the roles of money as a unit of account (UoA) as well as a medium of exchange (MoE), we consider the choice of a UoA in the context of a micro-founded model where inflation uncertainty exists and some conversion cost is incurred in using a UoA that is different from an MoE. We show that it is not the level of inflation but its volatility that matters for the choice of a UoA. In the presence of inflation uncertainty, money can still become both an MoE and a UoA as long as the conversion cost is higher than its maximum buyers are willing to bear for ensuring stable consumption against inflation uncertainty. Also, the choice of a UoA in the presence of fiat money as an MoE determines endogenously the nominal price rigidity or flexibility. An economy adopting money as a UoA yields the short-run nominal rigidity and the Phillips-curve relationship.

Keywords: Medium of exchange; Inflation uncertainty; Rigidity; Unit of account (search for similar items in EconPapers)
JEL-codes: E31 E40 E42 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165176517303312
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:160:y:2017:i:c:p:59-63

DOI: 10.1016/j.econlet.2017.08.008

Access Statistics for this article

Economics Letters is currently edited by Economics Letters Editorial Office

More articles in Economics Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().