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Welfare-improving credit controls

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  • Schreft, Stacey L.

Abstract

Credit controls are generally believed to result in an inefficient allocation of resources. This paper presents a counterexample. It displays a general equilibrium, multi-good model with spatial separation for which steady state equilibria exist in which both cash (i.e. fiat currency) and trade credit are used in exchange. Transaction costs, restrictions on the timing of trade, and a positive nominal interest rate cause the laissez-faire equilibrium to be non-optimal. A quantitative restriction on the use of trade credit can yield a Pareto superior allocation.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 30 (1992)
Issue (Month): 1 (October)
Pages: 57-72

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Handle: RePEc:eee:moneco:v:30:y:1992:i:1:p:57-72

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Web page: http://www.elsevier.com/locate/inca/505566

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References

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  1. Lucas, Robert E, Jr, 1980. "Equilibrium in a Pure Currency Economy," Economic Inquiry, Western Economic Association International, vol. 18(2), pages 203-20, April.
  2. Schreft, S L, 1992. "Transaction Costs and the Use of Cash and Credit," Economic Theory, Springer, vol. 2(2), pages 283-96, April.
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Cited by:
  1. Martin, Antoine, 2006. "Endogenous Multiple Currencies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(1), pages 245-262, February.
  2. Stacey L. Schreft, 2006. "How and why do consumers choose their payment methods?," Research Working Paper RWP 06-04, Federal Reserve Bank of Kansas City.
  3. Stefania Albanesi & V.V.Chari & Lawrence J. Christiano, 2002. "Expectation traps and monetary policy," Working Paper Series WP-02-04, Federal Reserve Bank of Chicago.
  4. Norrbin, S.C. & Reffett, K.L., 1993. "Trade Credit in a Monetary Economy," Working Papers 1993_06_02, Department of Economics, Florida State University.
  5. Michael Dotsey & Peter Ireland, 1994. "The welfare cost of inflation in general equilibrium," Working Paper 94-04, Federal Reserve Bank of Richmond.
  6. Jeffrey M. Lacker, 1996. "Stored value cards: costly private substitutes for government currency," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 1-25.
  7. Lacker, Jeffrey M. & Schreft, Stacey L., 1996. "Money and credit as means of payment," Journal of Monetary Economics, Elsevier, vol. 38(1), pages 3-23, August.
  8. Jeffrey M. Lacker, 1996. "Stored value cards: costly private substitutes for currency," Working Paper 96-03, Federal Reserve Bank of Richmond.
  9. Wen, Jean-Francois & Love, David R. F., 1998. "Evaluating Tax Reforms in a Monetary Economy," Journal of Macroeconomics, Elsevier, vol. 20(3), pages 487-508, July.
  10. Martin, Antoine, 2004. "Optimal pricing of intraday liquidity," Journal of Monetary Economics, Elsevier, vol. 51(2), pages 401-424, March.
  11. Jorge Soares, 2008. "Borrowing Constraints, Parental Altruism and Welfare," Working Papers 08-12, University of Delaware, Department of Economics.
  12. Michael Dotsey & Pablo Guerron-Quintana, 2012. "Interest rates and prices in an inventory model of money with credit," Working Papers 13-05, Federal Reserve Bank of Philadelphia.

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