A model of banknote discounts
By: Laurence Ales ... [et al.].
Contributors: Federal Reserve Bank of Minneapolis. Research Department
Series: Working paper / Federal Reserve Bank of Minneapolis, Research Dept -- 641; Working paper (Federal Reserve Bank of Minneapolis : Online) -- 641.
Publisher: Federal Reserve Bank of Minneapolis, Research Dept.
Published: 2005
Place of publication: Minneapolis, MN]
Language: eng
Format: [electronic resource] /
Description: "Prior to 1863, state-chartered banks in the United States issued notes--dollar denominated promises to pay specie to the bearer on demand. Although these notes circulated at par locally, they usually were quoted at a discount outside the local area. These discounts varied by both the location of the bank and the location where the discount was being quoted. Further, these discounts were asymmtric across locations, meaning that the discounts quoted in location A on the notes of banks in location B generally differed from the discounts quoted in location B on the notes of banks in location A. Also, discounts generally increased when banks suspended payments on their notes. In this paper we construct a random matching model to qualitatively match these facts about banknote discounts. To attempt to account for locational differences, the model has agents that come from two distinct locations. Each location also has bankers that can issue notes. Banknotes are accepted in exchange because banks are required to produce when a banknote is presented for redemption and their past actions are public information. Overall, the model delivers predictions consistent with the behavior of discounts."
Notes: Title from PDF file (viewed on Dec. 30, 2005).

" Revised December 2005."

Includes bibliographical references.

Also available in print.

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Mode of access: World Wide Web.