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Inside-outside money competition

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  • Marimon, Ramon
  • Nicolini, Juan Pablo
  • Teles, Pedro

Abstract

We study how competition from privately supplied currency substitutes a¤ects monetary policy. We focus on regimes where monetary policy must be sequentially optimal. We obtain that the workings of competition between currency and currency substitutes depend critically on government objectives. However, the impact inside money competition has on equilibrium outcomes does not. In fact, we show that, in general, it enhances e¢ciency and reduces equilibrium in‡ation rates. Nevertheless, if the supply of “inside monies” is very e¢cient, then the equilibrium with currency may not be sustainable and only “inside money” will be held in equilibrium.

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Bibliographic Info

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

Volume (Year): 50 (2003)
Issue (Month): 8 (November)
Pages: 1701-1718

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Handle: RePEc:eee:moneco:v:50:y:2003:i:8:p:1701-1718

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

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References

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  1. David Humphrey & Magnus Willesson & Goran Bergendahl & Ted Lindblom, 2003. "Cost savings from electronic payments and ATMs in Europe," Working Papers 03-16, Federal Reserve Bank of Philadelphia.
  2. DREZE, Jacques & POLEMARCHAKIS, Heracles, 2000. "Monetary equilibria," CORE Discussion Papers 2000044, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Woodford, M., 1997. "Doing Without Money: Controlling Inflation in a Post-Monetary World," Papers 632, Stockholm - International Economic Studies.
  4. Lucas, Robert Jr. & Stokey, Nancy L., 1983. "Optimal fiscal and monetary policy in an economy without capital," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 55-93.
  5. Juan P. Nicolini, 1993. "More on the time inconsistency of optimal monetary policy," Economics Working Papers 56, Department of Economics and Business, Universitat Pompeu Fabra.
  6. Atkinson, A. B. & Stiglitz, J. E., 1972. "The structure of indirect taxation and economic efficiency," Journal of Public Economics, Elsevier, vol. 1(1), pages 97-119, April.
  7. Chari, V V & Kehoe, Patrick J, 1993. "Sustainable Plans and Mutual Default," Review of Economic Studies, Wiley Blackwell, vol. 60(1), pages 175-95, January.
  8. Klein, Benjamin, 1974. "The Competitive Supply of Money," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 6(4), pages 423-53, November.
  9. Abreu, Dilip, 1988. "On the Theory of Infinitely Repeated Games with Discounting," Econometrica, Econometric Society, vol. 56(2), pages 383-96, March.
  10. V.V. Chari & Lawrence J. Christiano & Patrick J. Kehoe, 1993. "Optimality of the Friedman rule in economies with distorting taxes," Staff Report 158, Federal Reserve Bank of Minneapolis.
  11. Juan Pablo Nicolini & Ramon Marimon & Pedro Teles, 2000. "Competition and Reputation," Department of Economics Working Papers 002, Universidad Torcuato Di Tella.
  12. V.V. Chari & Patrick J. Kehoe, 1989. "Sustainable plans," Staff Report 122, Federal Reserve Bank of Minneapolis.
  13. Svensson, Lars E O, 1985. "Money and Asset Prices in a Cash-in-Advance Economy," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 919-44, October.
  14. Ramon Marimon, 2000. "Competition and Reputation," Econometric Society World Congress 2000 Contributed Papers 1384, Econometric Society.
  15. Taub, Bart, 1985. "Private fiat money with many suppliers," Journal of Monetary Economics, Elsevier, vol. 16(2), pages 195-208, September.
  16. repec:fth:louvco:0044 is not listed on IDEAS
  17. Calvo, Guillermo A, 1978. "On the Time Consistency of Optimal Policy in a Monetary Economy," Econometrica, Econometric Society, vol. 46(6), pages 1411-28, November.
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Cited by:
  1. Ramon Marimon & Javier Díaz-Giménez & Giorgia Giovannetti & Pedro Teles, 2007. "Nominal Debt as a Burden on Monetary Policy," NBER Working Papers 13677, National Bureau of Economic Research, Inc.
  2. Marimon, Ramon & Nicolini, Juan Pablo & Teles, Pedro, 2009. "Money is an Experience Good: Competition and Trust in the Private Provision of Money," CEPR Discussion Papers 7418, C.E.P.R. Discussion Papers.
  3. David C. Mills, Jr., 2007. "Imperfect monitoring and the discounting of inside money," Finance and Economics Discussion Series 2007-58, Board of Governors of the Federal Reserve System (U.S.).
  4. repec:hal:gemwpa:hal-00975432 is not listed on IDEAS

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