Money as a Unit of Account

Martin Schneider and Matthias Doepke

No 9700, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We develop a theory that rationalizes the use of a dominant unit of account in an economy. Agents enter into non-contingent contracts with a variety of business partners. Trade unfolds sequentially in credit chains and is subject to random matching. By using a dominant unit of account, agents can lower their exposure to relative price risk, avoid costly default, and create more total surplus. We discuss conditions under which it is optimal to adopt circulating government paper as the dominant unit of account, and the optimal choice of "currency areas" when there is variation in the intensity of trade within and across regions.

Keywords: Balance-sheet risk; Credit chains; Optimal currency areas; Unit of account (search for similar items in EconPapers)
JEL-codes: E40 E50 F33 (search for similar items in EconPapers)
Date: 2013-10
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (5)

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Journal Article: Money as a Unit of Account (2017)
Working Paper: Money as a Unit of Account (2013)
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