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The economics of payments

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  • Ed Nosal
  • Guillaume Rocheteau

Abstract

In this paper we provide a survey of the payment literature in a unified framework. The environment is a variant of the Lagos and Wright (2005) model of monetary exchange, where some trades occur in bilateral meetings while others occur in more or less decentralized markets. We use this basic environment to introduce alternative sets of trading frictions that give rise to different payments instruments and/or payments institutions. We investigate credit economies, monetary economies, and economies in which money and credit coexist. We also study alternative assets, such as foreign exchange, capital (equity), and government liabilities, which can be used as payment instruments in conjunction with money. We introduce banks as deposit-taking institutions whose liabilities circulate in the economy. We also provide an extension in which the process of the settlement of debt for money is modeled and the potential social costs of settlement are characterized. Finally, we investigate government policy responses to the social costs introduced by various trading frictions.

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Bibliographic Info

Article provided by Federal Reserve Bank of Cleveland in its journal Policy Discussion Papers.

Volume (Year): (2006)
Issue (Month): Feb ()
Pages:

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Handle: RePEc:fip:fedcpd:y:2006:i:feb:n:14

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Keywords: Payment systems ; Money;

References

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Citations

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Cited by:
  1. Antoine Martin & Michael Orlando & David Skeie, 2006. "Payment networks in a search model of money," Staff Reports, Federal Reserve Bank of New York 263, Federal Reserve Bank of New York.
  2. Stephen D. Williamson, 2006. "Transactions, Credit, and Central Banking in a Model of Segmented Markets," 2006 Meeting Papers, Society for Economic Dynamics 287, Society for Economic Dynamics.
  3. Kahn, Charles M. & Roberds, William, 2009. "Why pay? An introduction to payments economics," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 18(1), pages 1-23, January.
  4. Jonathan Chiu & Alexandra Lai, 2007. "Modelling Payments Systems: A Review of the Literature," Working Papers, Bank of Canada 07-28, Bank of Canada.

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