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Currency and Credit Are Equivalent Mechanisms

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  • Taub, Bart

Abstract

The author studies a pure exchange economy with many agents whose marginal utility of consumption is stochastically heterogeneous and independent of wealth, with realized marginal utility of wealth private information. He shows that currency and credit are equivalent to a contract that is efficient when the privacy of information is viewed as a constraint and that the cash-in-advance constraint is an expression of an incentive constraint. Copyright 1994 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Taub, Bart, 1994. "Currency and Credit Are Equivalent Mechanisms," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(4), pages 921-956, November.
    • Handle: RePEc:ier:iecrev:v:35:y:1994:i:4:p:921-56
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    Cited by:

    1. Berentsen, Aleksander & Waller, Christopher, 2011. "Outside versus inside bonds: A ModiglianiâMiller type result for liquidity constrained economies," Journal of Economic Theory, Elsevier, vol. 146(5), pages 1852-1887, September.
    2. Kahn, Charles M. & Roberds, William, 2008. "Credit and identity theft," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 251-264, March.
    3. Charles M. Kahn & James McAndrews & William Roberds, 2005. "Money Is Privacy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(2), pages 377-399, May.
    4. Aleksander Berentsen & Christopher Waller, 2008. "Outside Versus Inside Bonds," IEW - Working Papers 372, Institute for Empirical Research in Economics - University of Zurich.
    5. Kocherlakota, Narayana R., 1998. "Money Is Memory," Journal of Economic Theory, Elsevier, vol. 81(2), pages 232-251, August.
    6. Josef Schroth, 2016. "Supervising Financial Regulators," Staff Working Papers 16-52, Bank of Canada.
    7. Aiyagari, S. Rao & Williamson, Stephen D., 2000. "Money and Dynamic Credit Arrangements with Private Information," Journal of Economic Theory, Elsevier, vol. 91(2), pages 248-279, April.
    8. Narayana Kocherlakota, 2007. "Money and Credit: An Equivalence Result and Its Implications," 2007 Meeting Papers 115, Society for Economic Dynamics.
    9. Sergio Salas, 2020. "Precautionary Money Demand in a Cash-in-Advance Model," Working Papers 2020-03, Escuela de Negocios y Economía, Pontificia Universidad Católica de Valparaíso.
    10. Charles M. Kahn & James J. McAndrews & William Roberds, 2000. "A theory of transactions privacy," FRB Atlanta Working Paper 2000-22, Federal Reserve Bank of Atlanta.
    11. Lacker, Jeffrey M., 1997. "Clearing, settlement and monetary policy," Journal of Monetary Economics, Elsevier, vol. 40(2), pages 347-381, October.
    12. 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.
    13. , & , A., 2007. "Efficiency in repeated trade with hidden valuations," Theoretical Economics, Econometric Society, vol. 2(3), September.
    14. Sergio Salas, 2017. "Asset prices and wealth inequality in a simple model with idiosyncratic shocks," Estudios de Economia, University of Chile, Department of Economics, vol. 44(1 Year 20), pages 105-119, June.
    15. Narayana Kocherlakota, 2007. "Money and Bonds: An Equivalence Theorem," Levine's Bibliography 843644000000000161, UCLA Department of Economics.
    16. Sergio Salas, 2018. "On financial deepening and long-run growth," Journal of Economics, Springer, vol. 123(3), pages 249-276, April.
    17. William Roberds & Stacey L. Schreft, 2009. "Data security, privacy, and identity theft: The economics behind the policy debates," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 33(Q I), pages 22-30.
    18. Josef Schroth, 2015. "Risk Sharing in the Presence of a Public Good," Staff Working Papers 15-27, Bank of Canada.

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