Unit of Account, Medium of Exchange, and Prices

Young Sik Kim () and Manjong Lee
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Young Sik Kim: epartment of Economics & SIRFE, Seoul National University, Seoul, South Korea

No 1104, Discussion Paper Series from Institute of Economic Research, Korea University

Abstract: The separation of a unit of account (UoA) from a medium of exchange (MoE) in the commodity-money system is investigated by considering explicitly a seller¡¯s choice with regard to posting price in terms of either an MoE or a UoA. If the likelihood of debasement of MoE or its rate is high enough and agents are sufficiently risk averse, there exists a monetary equilibrium in which price is quoted in terms of a UoA. Further, a UoA-posting equilibrium yields the flexible nominal price, whereas an MoE-posting equilibrium yields the sticky one. This suggests that in the fiat-money system where MoE and UoA are integrated, price would not be flexibly adjusted.

Keywords: debasement; medium of exchange; unit of account; nominal price rigidity (search for similar items in EconPapers)
JEL-codes: E31 E42 F33 (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:iek:wpaper:1104

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