Abstract
We consider an environment where the general equilibrium assumption that every agent buys and sells simultaneously is relaxed. We show that fiat money can implement a Pareto optimal allocation only if taxes are type-specific. We then consider intermediated money by assuming that financial intermediaries whose liabilities circulate as money have an important identifying characteristic: they are widely viewed as default-free. The paper demonstrates that default-free intermediaries who issue deposit accounts with credit lines to consumers can resolve the monetary problem and make it possible for the economy to reach a Pareto optimum.
References
[1] Berentsen, Aleksander, Gabriele Camera and Christopher Waller (2005), “Money, Credit and Banking”, CESifo Working Paper No. 1617. Further information in IDEAS/RePEc10.2139/ssrn.647341Search in Google Scholar
[2] Bewley, Truman (1980). “The Optimal Quantity of Money,” in J. Kareken and N. Wallace ed. Models of Monetary Economies, Federal Reserve Bank of Minneapolis, pp. 169 — 210.Search in Google Scholar
[3] Bhattacharya, Joydeep, Joseph Haslag and Antoine Martin (2005). “Heterogeneity, Redistribution and the Friedman Rule,” International Economic Review, 46(2), pp. 437-54. Further information in IDEAS/RePEcSearch in Google Scholar
[4] Brock, William (1975). “A Simple Perfect Foresight Monetary Model,” Journal of Monetary Economics, 1, pp. 133-50. Further information in IDEAS/RePEcSearch in Google Scholar
[5] Bullard, James and Bruce Smith (2003). “The Value of Inside and Outside Money,” Journal of Monetary Economics, 50, pp. 398-417. Further information in IDEAS/RePEcSearch in Google Scholar
[6] Bulow, Jeremy and Kenneth Rogoff (1989). “Sovereign Debt: Is to Forgive to Forget?,” American Economic Review, 79, pp. 43-50. Further information in IDEAS/RePEcSearch in Google Scholar
[7] Cavalcanti, Ricardo and Neil Wallace (1999a). “Inside and Outside Money as Alternative Media of Exchange,” Journal of Money, Credit and Banking, 31(3), part 2, pp. 443-57. Further information in IDEAS/RePEc10.2307/2601062Search in Google Scholar
[8] Cavalcanti, Ricardo and Neil Wallace (1999b). “A Model of Private Bank-Note Issue,” Review of Economic Dynamics, 2(1), pp. 104-36. Further information in IDEAS/RePEc10.1006/redy.1998.0044Search in Google Scholar
[9] Cole, Harold and Narayana Kocherlakota (1998). “Zero Nominal Interest Rates,” Federal Reserve Bank of Minneapolis Quarterly Review, 22(2), pp. 2-10. Further information in IDEAS/RePEcSearch in Google Scholar
[10] Federal Reserve System (2004). The 2004 Federal Reserve Payments Study. http://www.frbservices.org/Retail/pdf/2004PaymentResearchReport.pdf (viewed: February 10, 2006).Search in Google Scholar
[11] Green, Edward and Ruilin Zhou (2005). “Money as a Mechanism in a Bewley Economy,” International Economic Review, 46(2), pp. 351 — 371.10.1111/j.1468-2354.2005.00321.xSearch in Google Scholar
[12] Kehoe, Timothy and David Levine (1993). “Debt-Constrained Asset Markets,” Review of Economic Studies, 60, pp. 865-888. Further information in IDEAS/RePEcSearch in Google Scholar
[13] Kiyotaki, Nobuhiro and Randall Wright (1989). “On Money as a Medium of Exchange,” Journal of Political Economy, 97(4), pp. 927 — 954.10.1086/261634Search in Google Scholar
[14] Kocherlakota, Narayana (2002). “Money: What’s the Question and Why Should We Care About the Answer?,” American Economic Review, 92(2), pp. 58-61. Further information in IDEAS/RePEc.Search in Google Scholar
[15] Ljungqvist, Lars and Thomas Sargent (2000). Recursive Macroeconomic Theory, Cambridge, MA, MIT Press. Further informationSearch in Google Scholar
[16] Mills, David C. (2007). “A Model in which Inside and Outside Money are Essential,” Macroeconomic Dynamics, 11(3), pp. 347-366. Further information in IDEAS/RePEcSearch in Google Scholar
[17] Sissoko, Carolyn (2007a) forthcoming. “Why Inside Money Matters,” Journal of Money, Credit and Banking.10.1111/j.1538-4616.2007.00100.xSearch in Google Scholar
[18] Sissoko, Carolyn (2007b). “The Macroeconomics of Bank Default,” mimeo.Search in Google Scholar
[19] Williamson, Stephen (1999). “Private Money,” Journal of Money, Credit and Banking, 31(3), pp. 469-491. Further information in IDEAS/RePEcSearch in Google Scholar
[20] Williamson, Stephen (2004). “Limited Participation, Private Money and Credit in a Spatial Model of Money,” Economic Theory, 24(4), pp. 857-75. Further information in IDEAS/RePEcSearch in Google Scholar
© 2007 Carolyn Sissoko, published by Sciendo
This work is licensed under the Creative Commons Attribution 4.0 International License.