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Credit and Money in a Search Model with Divisible Commodities

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Author Info
Shi, Shouyong

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Abstract

This 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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Publisher Info
Article provided by Blackwell Publishing in its journal Review of Economic Studies.

Volume (Year): 63 (1996)
Issue (Month): 4 (October)
Pages: 627-52
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Handle: RePEc:bla:restud:v:63:y:1996:i:4:p:627-52

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0034-6527

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  1. Neil Wallace, 1997. "Absence-of-double-coincidence models of money: a progress report," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-20. [Downloadable!]
  2. Hongfei Sun, 2007. "Banking, Inside Money and Outside Money," Working Papers 1146, Queen's University, Department of Economics. [Downloadable!]
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  3. Irina A. Telyukova & Randall Wright, 2007. "A model of money and credit, with application to the credit card debt puzzle," Working Paper 0711, Federal Reserve Bank of Cleveland. [Downloadable!]
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  4. Ricardo Cavalcanti & Andres Erosa & Ted Temzelides, 1998. "Private Money and Reserve Management in a Random Matching Model," Macroeconomics 9803008, EconWPA. [Downloadable!]
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  5. Jin, Yi & Temzelides, Ted, 1998. "On the Local Interaction of Money and Credit," Working Papers 99-05, University of Iowa, Department of Economics. [Downloadable!]
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  6. Mark Pingle & Sankar Mukhopadhyay, 2008. "Private Money as a Competing Medium of Exchange," Working Papers 08-004, University of Nevada, Reno, Department of Economics & University of Nevada, Reno , Department of Resource Economics. [Downloadable!]
  7. Alberto Trejos & Randall Wright, 1996. "Search-theoretic models of international currency," Proceedings, Federal Reserve Bank of St. Louis, issue May, pages 117-132. [Downloadable!]
  8. Shouyong Shi, 2002. "Nominal Bonds and Interest Rates: The Case of One-Period Bonds," Working Papers shouyong-03-03, University of Toronto, Department of Economics. [Downloadable!]
  9. Giuseppe Mastromatteo & Luigi Ventura, 2007. "The origin of money: A survey of the contemporary literature," International Review of Economics, Springer, vol. 54(2), pages 195-224, June. [Downloadable!] (restricted)
  10. Shouyong Shi, 2006. "A Microfoundation of Monetary Economics," Working Papers tecipa-211, University of Toronto, Department of Economics. [Downloadable!]
  11. Ed Nosal & Guillaume Rocheteau, 2006. "The economics of payments," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Feb. [Downloadable!]
  12. Ricardo de O. Cavalcanti & Neil Wallace, 1999. "A model of private bank-note issue," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 104-136, January. [Downloadable!] (restricted)
  13. Christopher Waller, 2002. "Modeling monetary economies Bruce Champ and Scott Freeman, 2001, pp. 325," Atlantic Economic Journal, International Atlantic Economic Society, vol. 30(2), pages 213-217, June. [Downloadable!] (restricted)
  14. Marchesiani, Alessandro & Senesi, Pietro, 2007. "Money and Nominal Bonds," MPRA Paper 9417, University Library of Munich, Germany. [Downloadable!]
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  15. Leo Ferraris, 2003. "Money And Credit In Random Matching Models Of Money," Working Papers 59, Sapienza University of Rome, Department of Public Economics. [Downloadable!]
  16. Antoine Martin & Michael Orlando & David Skeie, 2008. "Payment networks in a search model of money," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(1), pages 104-132, January. [Downloadable!] (restricted)
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  17. Zsolt Becsi & Victor Li & Ping Wang, . "Mismatch in Credit Markets," Departmental Working Papers 2002-03, Department of Economics, Louisiana State University. [Downloadable!]
  18. Aleksander Berentsen & Gabriele Camera & Christopher Waller, . "Money, Credit and Banking," IEW - Working Papers iewwp219, Institute for Empirical Research in Economics - IEW. [Downloadable!]
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