Money as a Unit of Account

Matthias Doepke and Martin Schneider

No 19537, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E4 E5 F33 (search for similar items in EconPapers)
Date: 2013-10
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
Note: EFG IFM ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Published as Matthias Doepke & Martin Schneider, 2017. "Money as a Unit of Account," Econometrica, Econometric Society, vol. 85, pages 1537-1574, September.

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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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