We use a 575,000-subject, 28-day experiment to investigate monetary policy in a virtual setting. The experiment tests the effect of virtual currency endowments on player retention and virtual currency demand. An increase in endowments of a virtual currency should lower the demand for the currency in the short run. However, in the long run, we would expect money demand to rise in response to inf...

This paper presents a general equilibrium currency crisis model of the ’third generation’, in which the possibility of currency crises is driven by the interplay between private Þrms’ credit-constraints and nominal price rigidities. Despite our emphasis on microfoundations, the model remains sufficiently simple that the policy analysis can be conducted graphically. The analysis hinges on four m...

What's Here Currency unions are all the rage in international policy circles these days. But suppose a country – say Argentina (the usual crisis de jour) – decides that it needs to adopt a foreign currency. Which one should it pick? Alesina, Barro and Tenreyro provide the methodology, or at least most of it, to answer this important and interesting question. Their methodology is reasonable in a...

One of the most significant factors influencing the liquidity of the financial market is the amount of currency in circulation. Although the central bank is responsible for the distribution of the currency it cannot assess the demand for the currency, as that demand is influenced by the non-banking sector. Therefore, the amount of currency in circulation has to be forecasted. This paper introdu...

HE USE OF CURRENCY in transactions is a regular part of our daily lives and a basic feature of our economic system. The importance of currency derives both from its obvious role in daily transactions and from the somewhat more subtle role of the currency system as the basis for our monetary and financial systems. The currency system is so fundamental to economic activity that we tend to give it...

This paper is concerned with the ability of speculation to generate a currency crisis. We consider a game-theoretic setting between a unit mass of speculators and a government that holds foreign currency reserves. We analyze conditions under which the speculators may be able to force the government to devaluate the currency. Among these conditions, we analyze the role of heterogeneous beliefs, ...