Essays in Honour of Charles Goodhart, Volume One
Edited by Paul Mizen
of ‘A cost of uniﬁed currency’ Sudipto Bhattacharya* It is always an enjoyable task to discuss a contribution by two colleagues as creative as John and Nobu, and this is especially so on the poignant occasion of a Festschrift in honour of Charles Goodhart, whose research has done so much to communicate European contributions on monetary and central banking issues to the world at large. This poignancy is only heightened by this paper, titled ‘A cost of uniﬁed currency’, being presented inside the auditorium of the Bank of England, around the time when the new euro currency is just coming into force across large swaths of the Continent and in Ireland. Both from a pragmatic as well as from a theoretical perspective, a rigorous scrutiny of seemingly facile arguments for the dominance of a uniﬁed medium of exchange should be welcomed. Modern models of trading processes with frictions ought to be subjected to the same kinds of robustness tests vis-à-vis their efﬁciency (and other properties) as was done for the classical Walrasian (and then Arrow–Debreu) models with incomplete markets, by eminent economists such as Oliver Hart (1975). In particular, it is imperative that the functioning of such trading processes be analysed under some degree of ex ante heterogeneity among agents in their tastes and/or endowments; in their chapter, Nobu Kiyotaki and John Moore have examined just such a scenario. In the Kiyotaki–Moore (hereafter KM) model, agents trade with ﬁat money in the absence...
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