Credit and Money in a Search Model with Divisible Commodities
AbstractThis paper examines the competition between money and credit in a search model with divisible commodities. It is shown that fiat money can be valuable even though it yields a lower rate of return than the coexisting credit. The competition between money and credit increases efficiency. The monetary equilibrium with credit Pareto dominates the monetary equilibrium without credit whenever the two coexist. When a credit is repaid with money, the competition also bounds the purchasing power of money from below by that of credit and so eliminates the weak inefficient monetary equilibrium found in previous search models. With numerical examples, three different monetary equilibria are ranked and the properties of the interest rate are examined. Copyright 1996 by The Review of Economic Studies Limited.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Review of Economic Studies.
Volume (Year): 63 (1996)
Issue (Month): 4 (October)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0034-6527
Other versions of this item:
- Shouyong Shi, 1995. "Credit and Money in a Search Model with Divisible Commodities," Working Papers 917, Queen's University, Department of Economics.
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
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