Staff Report 85

A Model of Commodity Money

Neil Wallace
Thomas J. Sargent | Consultant

Published January 1, 1983

Commodity money is modeled as one or two of the capital goods in a one-consumption good and one or two capital-good, overlapping generations model. Among the topics addressed using versions of the model are (i) the nature of the inefficiency of commodity money; (ii) the validity of quantity-theory predictions for commodity money systems; (iii) the circumstances under which one commodity emerges naturally as the commodity money; (iv) the role of inside money (money backed by private debt) in commodity money systems; and (v) the circumstances under which a government can choose the commodity to serve as the commodity money.

Published In: Journal of Monetary Economics (Vol. 12, No. 1, July 1983, pp. 163-187)

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