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The big problem of small change

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  • Thomas J. Sargent
  • Francois R. Velde

Abstract

Western Europe was plagued with currency shortages from the 14th century, at which a 'standard formula' had been devised to cure the problem. We use a cash-in-advance model of commodity money to define a currency shortage, show that they could develop and persist under commodity money regime, and analyze the role played by each ingredient in the standard formula. A companion paper documents the evolution of monetary theory, monetary experiments and minting technology over the course of six hundred years.

Suggested Citation

  • Thomas J. Sargent & Francois R. Velde, 1997. "The big problem of small change," Working Paper Series, Macroeconomic Issues WP-97-08, Federal Reserve Bank of Chicago.
    • Handle: RePEc:fip:fedhma:wp-97-08
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    References listed on IDEAS

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    1. 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.
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