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Commodity Money Inflation: Theory and Evidence from France in 1350–1436

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Abstract

This paper presents a theory of inflation in commodity money and supports it by evidence from inflationary episodes in France during the 14th and 15th centuries. The paper shows that commodity money can be inflated similarly to fiat money through repeated debasements, which act like devaluations. Furthermore, as with fiat money, demand for commodity money falls with inflation. However, at high rates of inflation demand for commodity money becomes insensitive to inflation, since commodity money has intrinsic value in addition to its transactions value. Finally, we show that anticipated stabilization reduces demand for commodity money.

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... It is also argued that a little inflation is beneficial for the economy (Danziger, 1988; Grunwald, 2010). However if this is occurring due to monetary expansion, then it is assumed to be equivalent to debasement of currency during old times (Sussman & Zeira, 2003) whose benefit is reaped by a spenders of newly created money-belonging to the upper class or the government. This is at the cost of loss of purchasing power for those who will get this money after it is debased, as explained earlier, or the savings they already have. ...
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The Great Debasement
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Money, deflation and seignorage in the fifteenth century
  • Bordo
Destabilizing effects of a successful stabilization
  • Paal
The best and worst of currencies
  • Motomura
Asymmetric information and commodity money
  • Gandal
In the absence of domestic currency
  • Pamuk
The debasement puzzle
  • Rolnick