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Indivisibility and Non-Neutrality of Money

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  • Manjong Lee

    (Kyung Hee University)

Abstract

In this paper, we study the real effects of different degrees of divisibility of money in a random matching model. When money is very indivisible, as it is seemingly true in most of the world before the 19th century, welfare increases as the divisibility of money increases (non-neutrality). However, when the degree of divisibility is sufficiently high, as it is seemingly true for the current U.S. coinage system, there would be little or no welfare loss from reducing the degree of divisibility, the elimination of the penny.

Suggested Citation

  • Manjong Lee, 2007. "Indivisibility and Non-Neutrality of Money," Korean Economic Review, Korean Economic Association, vol. 23, pages 223-242.
    • Handle: RePEc:kea:keappr:ker-200712-23-2-01
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    money; indivisibility; non-neutrality; matching model;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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