A Model of Commodity Money, with Applications to Gresham's Law and the Debasement Puzzle

Francois Velde (), Warren Weber and Randall Wright

Review of Economic Dynamics, 1999, vol. 2, issue 1, 291-323

Abstract: What are the conditions under which Gresham's Law holds? And what are the mechanics of a debasement? To analyze these questions, we develop a model of commodity money with light and heavy coins, imperfect information, and prices determined via bilateral bargaining. There are equilibria with neither, both, or only one type of coin in circulation. When both circulate, coins may trade by weight or by tale. We discuss the extent to which Gresham's Law holds in the various cases. Following a debasement, depending on the incentives offered, equilibria exist with positive seigniorage and a mixture of old and new coins in circulation. (Copyright: Elsevier)

Keywords: random matching; commodity money; Gresham's Law; debasement; asymmetric information (search for similar items in EconPapers)
JEL-codes: E42 N10 (search for similar items in EconPapers)
Date: 1999
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Citations: View citations in EconPapers (52)

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Related works:
Working Paper: A model of commodity money, with applications to Gresham's Law and the debasement puzzle (1997)
Working Paper: A model of commodity money, with applications to Gresham's law and the debasement puzzle (1997)
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DOI: 10.1006/redy.1998.0037

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