IDEAS home Printed from https://ideas.repec.org/a/mcb/jmoncb/v31y1999i2p137-61.html
   My bibliography  Save this article

The Big Problem of Small Change

Author

Listed:
  • Sargent, Thomas J
  • Velde, Francois R

Abstract

The medieval money supply mechanism implemented a commodity standard throughout the denomination structure by imposing mint and melt points for each coin. Mints stood ready to sell (but not to buy) coins for metal. Seigniorage and brassage fees determined the spreads between mint points and melt points for each coin. Because it was cheaper to make a large coin than a smaller one, there were difficulties in aligning the mint-melt points for various coins, and these exposed the system to recurrent shortages, especially of small coins. The authors build a model of the medieval money supply system and modify a cash-in-advance model of demand to capture a preference for small change. They use the model to study the behavior of exchange rates between large and small denomination coins across periods of shortages. The authors also use the model to study how a standard formula of the nineteenth century could be used to supply small change without shortages. The standard formula displaced the medieval supply mechanism with a token currency for all coins but one.

Suggested Citation

  • Sargent, Thomas J & Velde, Francois R, 1999. "The Big Problem of Small Change," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(2), pages 137-161, May.
    • Handle: RePEc:mcb:jmoncb:v:31:y:1999:i:2:p:137-61
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Bruce D. Smith & Thomas J. Sargent, 1997. "Coinage, debasements, and Gresham's laws," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 10(2), pages 197-226.
    2. Lucas, Robert Jr., 1982. "Interest rates and currency prices in a two-country world," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 335-359.
    3. Diaz-Gimenez, Javier & Prescott, Edward C. & Fitzgerald, Terry & Alvarez, Fernando, 1992. "Banking in computable general equilibrium economies," Journal of Economic Dynamics and Control, Elsevier, vol. 16(3-4), pages 533-559.
    4. John Kareken & Neil Wallace, 1981. "On the Indeterminacy of Equilibrium Exchange Rates," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 96(2), pages 207-222.
    5. Glassman, Debra & Redish, Angela, 1988. "Currency depreciation in early modern England and France," Explorations in Economic History, Elsevier, vol. 25(1), pages 75-97, January.
    6. Christopher A. Sims, 1989. "Solving nonlinear stochastic optimization and equilibrium problems backwards," Discussion Paper / Institute for Empirical Macroeconomics 15, Federal Reserve Bank of Minneapolis.
    7. Helpman, Elhanan, 1981. "An Exploration in the Theory of Exchange-Rate Regimes," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 865-890, October.
    8. Redish, Angela, 1990. "The Evolution of the Gold Standard in England," The Journal of Economic History, Cambridge University Press, vol. 50(4), pages 789-805, December.
    9. Thomas J. Sargent & Francois R. Velde, 1997. "The evolution of small change," Working Paper Series, Macroeconomic Issues WP-97-13, Federal Reserve Bank of Chicago.
    10. Sims, Christopher A, 1990. "Solving the Stochastic Growth Model by Backsolving with a Particular Nonlinear Form for the Decision Rule," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(1), pages 45-47, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Helpman, Elhanan & Leiderman, Leonardo, 1991. "Exchange Rate Systems: New Perspectives," Foerder Institute for Economic Research Working Papers 275504, Tel-Aviv University > Foerder Institute for Economic Research.
    2. Martin, Antoine, 2006. "Endogenous Multiple Currencies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(1), pages 245-262, February.
    3. Greenwood, Jeremy & Williamson, Stephen D., 1989. "International financial intermediation and aggregate fluctuations under alternative exchange rate regimes," Journal of Monetary Economics, Elsevier, vol. 23(3), pages 401-431, May.
    4. Hwang, Chiun-Lin, 1989. "Optimal monetary policy in an open macroeconomic model with rational expectation," ISU General Staff Papers 1989010108000010197, Iowa State University, Department of Economics.
    5. Dirk Steffen & Ingo Pitterle, 2004. "Spillover Effects of Fiscal Policy Under Flexible Exchange Rates," Econometric Society 2004 Australasian Meetings 286, Econometric Society.
    6. Casella, Alessandra, 1992. "Participation in a Currency Union," American Economic Review, American Economic Association, vol. 82(4), pages 847-863, September.
    7. Javier Bianchi & Saki Bigio & Charles Engel, 2021. "Scrambling for Dollars: International Liquidity, Banks and Exchange Rates," Working Papers 786, Federal Reserve Bank of Minneapolis.
    8. Horvath, Julius, 2003. "Optimum currency area theory: A selective review," BOFIT Discussion Papers 15/2003, Bank of Finland Institute for Emerging Economies (BOFIT).
    9. Michael D. Bordo & William Roberds, 2022. "Central Bank Digital Currencies: An Old Tale with a New Chapter," FRB Atlanta Working Paper 2022-18, Federal Reserve Bank of Atlanta.
    10. Helpman, Elhanan & Leiderman, Leonardo, 1988. "Stabilization in high inflation countries: Analytical foundations and recent experience," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 28(1), pages 9-84, January.
    11. Francois R. Velde & Warren E. Weber, 2000. "A Model of Bimetallism," Journal of Political Economy, University of Chicago Press, vol. 108(6), pages 1210-1234, December.
    12. Frenkel, Jacob A. & Mussa, Michael L., 1985. "Asset markets, exchange rates and the balance of payments," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 14, pages 679-747, Elsevier.
    13. Sargent, Thomas J, 1982. "Beyond Demand and Supply Curves in Macroeconomics," American Economic Review, American Economic Association, vol. 72(2), pages 382-389, May.
    14. Charles Engel & Feng Zhu, 2019. "Exchange rate puzzles: evidence from rigidly fixed nominal exchange rate systems," BIS Working Papers 805, Bank for International Settlements.
    15. M. Udara Peiris & Dimitrios P. Tsomocos, 2019. "International monetary equilibrium with default," Chapters, in: Financial Regulation and Stability, chapter 10, pages 259-269, Edward Elgar Publishing.
    16. Eugeni, Sara, 2024. "Nominal exchange rates and net foreign assets' dynamics: The stabilization role of valuation effects," Journal of International Money and Finance, Elsevier, vol. 141(C).
    17. Willem Buiter, 2000. "The Fallacy of the Fiscal Theory of the Price Level, Again," CESifo Working Paper Series 303, CESifo.
    18. Kim, Duhyeong, 2023. "International effects of quantitative easing and foreign exchange intervention," Journal of International Economics, Elsevier, vol. 145(C).
    19. Romina Ruprecht, 2020. "Negative interest rates, capital flows and exchange rates," ECON - Working Papers 351, Department of Economics - University of Zurich.
    20. Dupor, Bill, 2000. "Exchange rates and the fiscal theory of the price level," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 613-630, June.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mcb:jmoncb:v:31:y:1999:i:2:p:137-61. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley-Blackwell Digital Licensing or Christopher F. Baum (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.