Monday, June 25, 2007


A local currency has sprouted up in western Massachusetts. It is called BerkShares. The details of the system suggest that it is motivated largely by price discrimination: People who go through the trouble of converting U.S. dollars to BerkShares get a 10 percent discount on things they buy. In this sense, the system is like discount coupons coupled with a new medium of exchange.

Question for budding macroeconomists: If use of the BerkShare system became widespread, what effect would it have on inflation if

(a) the Fed held the supply of U.S. dollars constant?

(b) the Fed were following an interest rate rule, such as a Taylor rule?