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The Third Generation Approach to Currency Crises

Phillippe Aghion and Abhijit Banerjee

in Volatility and Growth

This chapter presents a highly stylized model, based on limited access to credit that can explain why an economy that is carrying a large amount of foreign currency debt might be vulnerable to ... More

This chapter presents a highly stylized model, based on limited access to credit that can explain why an economy that is carrying a large amount of foreign currency debt might be vulnerable to currency crises, leaving it with a depreciated currency and GDP that remains lower than the pre-crisis trend for some time into the future. It is argued that in a monetary economy with standard price rigidities, credit constraints together with pecuniary externalities working through the nominal exchange rate are sufficient to generate currency crises.Less

Liquidity, Monetary Policy, and Asset Prices

Ed Nosal and Guillaume Rocheteau

in Money, Payments, and Liquidity

This chapter investigates the process through which asset prices are determined in monetary economies. Here, fiat money is viewed as an asset when situated within a monetary economy. Though its ... More

This chapter investigates the process through which asset prices are determined in monetary economies. Here, fiat money is viewed as an asset when situated within a monetary economy. Though its fundamental value is zero, fiat money appears to have positive value if there is limited enforcement and a lack of record-keeping. The presents study focuses on an environment void of money, but with a fixed supply of assets. It shows that just like fiat money, real assets can be used as a medium of exchange in decentralized trades. Next, the chapter explores how inflation affects the pricing of assets within an environment that has a fixed supply of real assets. It also determines the possible value of assets by analyzing rate-of-return differences across assets as stemming from liquidity differences.Less

The Indies, Value, and Wealth

in New World Gold: Cultural Anxiety and Monetary Disorder in Early Modern Spain

Due to the Spanish crown's overconfident reliance on New World treasures, a system of loans emerged that, after the first bankruptcy of 1557, transformed into long-term securities made available to ... More

Due to the Spanish crown's overconfident reliance on New World treasures, a system of loans emerged that, after the first bankruptcy of 1557, transformed into long-term securities made available to individual investors by Genoese bankers. In the last decades of the sixteenth century, there was heavy demand for rent incomes that made the initial boom of government bonds (juros) pale in comparison with the popularity of mortgage property loans (censos). This chapter explores the ambiguous role of the Indies in the attempts to mediate value. Political economists argued that the economy had been ruined by treasures, while moralists attributed the loss of virtue caused by wealth and luxury to the Indies. To counter the effeminizing effects of the monetary economy and intercontinental trade, Francisco de Quevedo and Bartolomé Leonardo de Argensola proposed martial virtues. The chapter argues that the literary landscape in the Indies masked the decline of value by stabilizing valuation around the goodness of New World gold. By displaying gold pieces, the indiano and the Amazon demonstrate what the center of value should be.Less

The New World of Money

in New World Gold: Cultural Anxiety and Monetary Disorder in Early Modern Spain

This chapter focuses on the price revolution and the new monetary economy during the first half of the sixteenth century. Although credit was central to the networks of continental commerce, the ... More

This chapter focuses on the price revolution and the new monetary economy during the first half of the sixteenth century. Although credit was central to the networks of continental commerce, the general public believed that the financial instruments introduced by money changers and banking firms had created a strange and opaque monetary order. They suspected the deceitful transactions that were going on in the money market, which increased the price of commodities and dissolved gold and silver pieces coming from the New World into the uncertainty of credit. The progressive abstraction of money and inflation led to the belief that money itself was beginning to break down altogether. By causing puzzlement and confusion, money gave rise to extensive parliamentary petitions, economic treatises, and literary reflections. The chapter considers such writings in chronological order, including those by Cristóbal de Villalón and Luis Saravia de la Calle, in order to assess the cultural and intellectual anxiety that accompanied the growth of the credit economy. The Indies became associated with the new commercial practices and acquired a prominent role in economic writing.Less

Introduction

Jotham Parsons

in Making Money in Sixteenth-Century France: Currency, Culture, and the State

This introductory chapter discusses the monetary developments in sixteenth-century Europe. In particular, it presents several factors that caused these developments such as the expansion of global ... More

This introductory chapter discusses the monetary developments in sixteenth-century Europe. In particular, it presents several factors that caused these developments such as the expansion of global and internal commerce following the voyages of discovery; the influx of precious metal from central European, South American, and Japanese mines; as well as the exponentially increasing fiscal demands of warfare in the age of the military revolution. In relation to this background, the book focuses on France's monetary economy from the mid-sixteenth through the early seventeenth century during which the France was still Europe's largest and most powerful state. While the French case is not entirely typical, it generated many ideas and institutions crucial to the unfolding European system.Less

Introduction: Economy, Currency, and Value in the Viking Age

Jane Kershaw

in Silver, Butter, Cloth: Monetary and Social Economies in the Viking Age

The Introduction sets out the scope and aims of the book, and explains how it departs from earlier publications dealing with similar themes. It then discusses the four themes around which the ... More

The Introduction sets out the scope and aims of the book, and explains how it departs from earlier publications dealing with similar themes. It then discusses the four themes around which the fourteen chapters are structured: the monetary and quasi-monetary functions of silver; the role of precious metals in primarily non-monetary (i.e. social and ritual) contexts; the sources of silver as assessed through archaeometric methods; and the monetary role of non-silver currencies, namely gold, cloth, and butter. The processes by which non-silver currencies were given value as currency are considered, alongside the social implications of the large-scale production of such currencies, particularly with respect to women’s economic agency.Less

Information, Monetary Policy, and the Inflation–Output Trade-Off

Ed Nosal and Guillaume Rocheteau

in Money, Payments, and Liquidity

This chapter asks the question, “How does money affect output?” While money is neutral, it cannot be considered to be superneutral due to the real effects the changes in the rate of growth of money ... More

This chapter asks the question, “How does money affect output?” While money is neutral, it cannot be considered to be superneutral due to the real effects the changes in the rate of growth of money supply have on lowering aggregate real balances, real output, and welfare.Less

The Prevailing Opinion on the Relationship between Credit and Capital Goods (the Influence of Capital on Credit)

L. Albert Hahn

in Economic Theory of Bank Credit

This book’s theory stresses the effect of credit on capital but the literature is preoccupied by the effect of capital on credit. Two broad perspectives on the effect of capital on credit, namely the ... More

This book’s theory stresses the effect of credit on capital but the literature is preoccupied by the effect of capital on credit. Two broad perspectives on the effect of capital on credit, namely the barter and the monetary perspective, are set out. There is no money in a barter economy and so goods have to be traded against goods. Therefore capital goods can only be obtained by borrowing from another individual who saved some goods. Thus, in a barter economy savings determine the supply of capital goods. The interest rate balances the supply and demand for capital goods. Despite being logically coherent the barter view is not applicable to the modern economy. In the modern economy capital goods are not rented but usually bought on the ordinary goods market. The amount of capital goods therefore affects the goods’ price not the interest rate.Less

The Function of Goods

Renata Ago

in Gusto for Things: A History of Objects in Seventeenth-Century Rome

This chapter examines the different functions of goods in seventeenth-century Rome. These functions include goods as objects for exchange, as object of exchange, and as objects kept temporarily or ... More

This chapter examines the different functions of goods in seventeenth-century Rome. These functions include goods as objects for exchange, as object of exchange, and as objects kept temporarily or permanently outside the ambit of economic activity. This chapter analyzes the connection between the nature of goods and the development of monetary economy and provides examples of situations where objects can function directly as money. It also discusses the transformation of the concern for objects that had value into concern for objects that were one’s own.Less