Markets with Gold
Markets with Gold
We study markets with a durable good (gold) as money. At any one time, gold can either give a continuous stream of service utility to its owner if it is being worn as “jewelry”, or it can used for monetary transactions, but not both. Thus a model has to keep track of where the gold is at all times. Hence we break up the model’s time period into a money market (for models with lending), a goods market, and periods in between. We solve a model with no banking (i.e., a “Basic Model” but with the above changes) and with an altruistic bank. We also enlarge the model to include a parameter denoting the per unit salvage value for leftover gold at the end of the game. In all cases, we see inefficient trade, because the traders prefer the service value of some gold rather than using it to facilitate trade all the way to the efficient levels. Finally, at the end of the chapter an alternative formulation is presented, in which there are two kinds of gold (“transactions gold” and “service gold”), with a conversion cost from one kind to the other.
Keywords: gold coin vs jewelry, gold money, salvage value, stock variable vs flow variable, trading day
Yale Scholarship Online requires a subscription or purchase to access the full text of books within the service. Public users can however freely search the site and view the abstracts and keywords for each book and chapter.
Please, subscribe or login to access full text content.
If you think you should have access to this title, please contact your librarian.
To troubleshoot, please check our FAQs , and if you can't find the answer there, please contact us.
