Carrying cost of money and real effects of denomination structure

Research output: Contribution to journalArticle

5 Citations (Scopus)

Abstract

This paper provides an explanation for the nature of the real effects of denomination structure using parameterized versions of a search-based model. We show that the carrying cost of money incurs the distortionary effect on output and the adverse distributional effect on welfare. With monetary expansion, average propensity to consume increases more rapidly in a single denomination than in multiple denominations due to the distortionary effect, and the welfare gap between them is augmented due to both distortionary and adverse distributional effects. The implication of these effects for modern economies is that a binary-decimal structure adopted by the EU and the US is superior to a decimal-pair structure adopted by Japan and South Korea.

Original languageEnglish
Pages (from-to)326-337
Number of pages12
JournalJournal of Macroeconomics
Volume32
Issue number1
DOIs
Publication statusPublished - 2010 Mar 1
Externally publishedYes

Fingerprint

Denomination
Costs
Distributional effects
South Korea
Japan
Propensity

Keywords

  • Denominations
  • Matching model
  • Welfare

ASJC Scopus subject areas

  • Economics and Econometrics

Cite this

Carrying cost of money and real effects of denomination structure. / Lee, Manjong.

In: Journal of Macroeconomics, Vol. 32, No. 1, 01.03.2010, p. 326-337.

Research output: Contribution to journalArticle

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