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Sufficiency of an Outside Bank and a Default Penalty to Support the Value of Fiat Money: Experimental Evidence

Juergen Huber, Martin Shubik and Shyam Sunder ()
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Juergen Huber: University of Innsbruck, Austria

No 1675RR, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We present a model in which an outside bank and a default penalty support the value of fiat money, and experimental evidence that the theoretical predictions about the behavior of such economies, based on the Fisher-condition, work reasonably well in a laboratory setting. The import of this finding for the theory of money is to show that the presence of a societal bank and default laws provide sufficient structure to support the use of fiat money and use of the bank rate to influence inflation or deflation, although other institutions could provide alternatives.

Keywords: Experimental gaming; Bank; Fiat money; Outside bank; General equilibrium (search for similar items in EconPapers)
JEL-codes: C73 C91 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-exp and nep-mon
Date: 2014-07
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Published in Journal of Economic Dynamics and Control (October 2014), 47: 317-337

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Related works:
Journal Article: Sufficiency of an outside bank and a default penalty to support the value of fiat money: Experimental evidence (2014) Downloads
Working Paper: Sufficiency of an Outside Bank and a Default Penalty to Support the Value of Fiat Money: Experimental Evidence (2013) Downloads
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