Is the Quantity Theory Dead? Lessons from the Pandemic
In: Mercatus Research Paper
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In: Mercatus Research Paper
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In: The quarterly review of economics and finance, Band 84, S. 462-477
ISSN: 1062-9769
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In: Mercatus Symposium, 2022
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In: The B.E. journal of theoretical economics, Band 22, Heft 1, S. 311-328
ISSN: 1935-1704
Abstract
In this paper, I show the validity of and the relationship between two previously unrelated claims in monetary theory. The first claim, made by Earl Thompson, is that privately-issued bank notes pay a positive rate of return in a competitive equilibrium. The second claim, made by Fischer Black, is that it is possible to have a gold standard in which the gold reserves of the central bank are near zero. I show that both of these claims are correct under the assumption of complete markets and perfect commitment. The link between these claims is the Black-Scholes equation applied to convertible bank notes. In commodity-based monetary systems, bank notes are perpetual American options. I extend the model to consider the implications of a lack of commitment on the part of the bank and incomplete markets. I show that both arguments break down when banks lack commitment to redemption or markets are incomplete. I conclude with implications for macroeconomic theory.
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In: Special Edition Policy Brief, 2020
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Working paper
In: AIER Sound Money Project Working Paper No. 2022-06
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In: Mercatus Research Paper
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In: AIER Sound Money Project Working Paper No. 2020-01
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In: AIER Sound Money Project Working Paper No. 2018-02
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In: AIER Sound Money Project Working Paper No. 2019-09
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In: AIER Sound Money Project Working Paper No. 2020-13
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Working paper
In: The journal of economic history, Band 77, Heft 2, S. 615-616
ISSN: 1471-6372