Separation of Unit of Account from Medium of Exchange

Young Sik Kim, Manjong Lee

Research output: Contribution to journalArticle

1 Citation (Scopus)

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 of UoA in terms of either an MoE or a unit of metal weight. If the likelihood of debasement of an MoE and its rate are high enough, the price is posted in terms of a unit of metal weight rather than an MoE. Interestingly, this MoE-UoA separated equilibrium yields the flexible nominal price, whereas an MoE-UoA integrated equilibrium yields the sticky one. This implies the nominal price rigidity in the fiat-money system where MoE and UoA are integrated.

Original languageEnglish
Pages (from-to)1685-1703
Number of pages19
JournalJournal of Money, Credit and Banking
Volume45
Issue number8
DOIs
Publication statusPublished - 2013 Dec 1

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Keywords

  • Debasement
  • Medium of exchange
  • Nominal price rigidity
  • Unit of account

ASJC Scopus subject areas

  • Finance
  • Accounting
  • Economics and Econometrics

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