MONEY AS A UNIT OF ACCOUNT

MONEY AS A UNIT OF ACCOUNT

We develop a theory that rationalizes the use of a dominant unit of account in an economy. Agents enter into non-contingent contracts with a variety of business partners. Trade unfolds sequentially in credit chains and is subject to random matching. By using a dominant unit of account, agents can lo...

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Veröffentlicht in:Econometrica 2017-09, Vol.85 (5), p.1537-1574
Hauptverfasser: Doepke, Matthias, Schneider, Martin
Format: Artikel
Sprache:eng
Schlagworte:
American dollar
balance sheet risk
credit chains
Currency
currency areas
Economic theory
Money
Unit of account
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container_title Econometrica
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creator Doepke, Matthias
Schneider, Martin
description We develop a theory that rationalizes the use of a dominant unit of account in an economy. Agents enter into non-contingent contracts with a variety of business partners. Trade unfolds sequentially in credit chains and is subject to random matching. By using a dominant unit of account, agents can lower their exposure to relative price risk, avoid costly default, and create more total surplus. We discuss conditions under which it is optimal to adopt circulating government paper as the dominant unit of account, and the optimal choice of "currency areas" when there is variation in the intensity of trade within and across regions.
doi_str_mv 10.3982/ECTA11963
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source JSTOR Mathematics & Statistics; JSTOR Archive Collection A-Z Listing; Wiley Online Library All Journals
subjects American dollar
balance sheet risk
credit chains
Currency
currency areas
Economic theory
Money
Unit of account
title MONEY AS A UNIT OF ACCOUNT
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