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On the Local Interaction of Money and Credit

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  • Yi Jin

    (University of Kansas)

  • Ted Temzelides

    (University of Pittsburgh)

Abstract

We study the coexistence of monetary and credit transactions in a model where exchange is decentralized. Agents belong to different locations which are informationally separated. The equilibrium mix of monetary and credit transactions is characterized as a function of the frequency of meetings among agents from different locations, Credit transactions take place only among a small set of 'neighbors.' Monetary trades emerge only if interactions with faraway locations are sufficiently frequent. Even in that case, trades among nearby locations remain non-monetized. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/S1094-2025(03)00055-3
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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 7 (2004)
Issue (Month): 1 (January)
Pages: 143-156

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Handle: RePEc:red:issued:v:7:y:2004:i:1:p:143-156

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Keywords: Money and Credit; Local Matching;

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References

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  1. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August.
  2. Coles, Melvyn G. & Wright, Randall, 1998. "A Dynamic Equilibrium Model of Search, Bargaining, and Money," Journal of Economic Theory, Elsevier, vol. 78(1), pages 32-54, January.
  3. Shouyong Shi, 1997. "A Divisible Search Model of Fiat Money," Econometrica, Econometric Society, vol. 65(1), pages 75-102, January.
  4. Kocherlakota, Narayana R., 1998. "Money Is Memory," Journal of Economic Theory, Elsevier, vol. 81(2), pages 232-251, August.
  5. Lucas, Robert E, Jr, 1980. "Equilibrium in a Pure Currency Economy," Economic Inquiry, Western Economic Association International, vol. 18(2), pages 203-20, April.
  6. Francois R. Velde & Warren E. Weber & Randall Wright, 1997. "A model of commodity money, with applications to Gresham's law and the debasement puzzle," Staff Report 215, Federal Reserve Bank of Minneapolis.
  7. Cole, Harold L. & Kehoe, Patrick J., 1995. "The role of institutions in reputation models of sovereign debt," Journal of Monetary Economics, Elsevier, vol. 35(1), pages 45-64, February.
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  10. Glen Ellison, 2010. "Learning, Local Interaction, and Coordination," Levine's Working Paper Archive 391, David K. Levine.
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  12. Thomas J. Sargent & Francois R. Velde, 1997. "The big problem of small change," Working Paper Series, Macroeconomic Issues WP-97-08, Federal Reserve Bank of Chicago.
  13. Aiyagari, S.R. & Williamson, S.D., 1997. "Credit in a Random Matching Model with Private Information," Working Papers 97-03, University of Iowa, Department of Economics.
  14. Kocherlakota, Narayana & Wallace, Neil, 1998. "Incomplete Record-Keeping and Optimal Payment Arrangements," Journal of Economic Theory, Elsevier, vol. 81(2), pages 272-289, August.
  15. Steve Williamson & Randall Wright, 1991. "Barter and monetary exchange under private information," Staff Report 141, Federal Reserve Bank of Minneapolis.
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  17. Lim, Y. & Townsend, R.M., 1997. "General Equilibrium Models of Financial Systems: Theory and Measurement in Village Economies," Papers 9716, Centro de Estudios Monetarios Y Financieros-.
  18. Shi Shougong, 1995. "Money and Prices: A Model of Search and Bargaining," Journal of Economic Theory, Elsevier, vol. 67(2), pages 467-496, December.
  19. Trejos, Alberto & Wright, Randall, 1995. "Search, Bargaining, Money, and Prices," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 118-41, February.
  20. Diamond, Peter, 1990. "Pairwise Credit in Search Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 285-319, May.
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Citations

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Cited by:
  1. Xavier Cuadras, 2005. "Circulation of Private Notes during a Currency Shortage," Working Papers 164, Barcelona Graduate School of Economics.
  2. Huberto M. Ennis, 2006. "The problem of small change in early Argentina," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 93-111.
  3. 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.
  4. Miquel Faig, 2004. "Divisible Money in an Economy with Villages," Econometric Society 2004 North American Summer Meetings 248, Econometric Society.
  5. Peter Rupert & Martin Schindler & Andrei Shevchenko & Randall Wright, 2000. "The search-theoretic approach to monetary economics: a primer," Economic Review, Federal Reserve Bank of Cleveland, issue Q IV, pages 10-28.
  6. Ed Nosal & Guillaume Rocheteau, 2006. "The economics of payments," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Feb.

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