Revisiting the Legal Restrictions Hypothesis∗

Abstract

This paper re-examines the so-called coexistence puzzle in terms of a modified version of the legal restrictions hypothesis initially put forth by Bryant and Wallace (1980). The modification is in terms of dropping a questionable assumption in the original hypothesis; i.e., that large denomination government bonds cannot be intermediated by private banks. This restriction is replaced by one that is arguably more palatable; i.e., that there is some feature of the environment that renders private money less than universally acceptable as a means of payment (in contrast to government money). The friction that gives rise to this latter restriction is one that is commonly employed in monetary models where fiat money is essential for exchange.

Cite this paper

@inproceedings{Andolfatto2006RevisitingTL, title={Revisiting the Legal Restrictions Hypothesis∗}, author={David Andolfatto and S . N . Fraser}, year={2006} }