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The economics of payments

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Author Info

  • 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

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Citations

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Cited by:
  1. Stephen D. Williamson, 2006. "Transactions, Credit, and Central Banking in a Model of Segmented Markets," 2006 Meeting Papers 287, Society for Economic Dynamics.
  2. Jonathan Chiu & Alexandra Lai, 2007. "Modelling Payments Systems: A Review of the Literature," Working Papers 07-28, Bank of Canada.
  3. Antoine Martin & Michael Orlando & David Skeie, 2006. "Payments network in a search model of money," 2006 Meeting Papers 580, Society for Economic Dynamics.
  4. Kahn, Charles M. & Roberds, William, 2009. "Why pay? An introduction to payments economics," Journal of Financial Intermediation, Elsevier, vol. 18(1), pages 1-23, January.

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