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Limited participation, private money, and credit in a spatial model of money

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  • Stephen Williamson

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Abstract

The purpose of this paper is to explore the implications of private money issue for the effects of monetary policy, for optimal policy, and for the role of fiat money. A locational model is constructed which gives an explicit account of the role for money and credit, and for limited financial market participation. When private money issue is prohibited, there is a liquidity effect as the result of a money injection from the central bank, but this effect goes away when private money is permitted. Private money issue changes dramatically the nature of optimal monetary policy. With private money, fiat currency is no longer used in transactions involving goods, but currency and central bank reserves play an important part in the clearing and settlement of private money returned for redemption. Copyright Springer-Verlag Berlin/Heidelberg 2004

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File URL: http://hdl.handle.net/10.1007/s00199-003-0463-3
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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 24 (2004)
Issue (Month): 4 (November)
Pages: 857-875

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Handle: RePEc:spr:joecth:v:24:y:2004:i:4:p:857-875

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Related research

Keywords: Money; Credit; Limited participation.;

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Citations

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Cited by:
  1. Stephen D. Williamson, 2005. "Limited participation and the neutrality of money," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 1-20.
  2. Antoine Martin, 2008. "Reconciling Bagehot with the Fed's response to September 11," Staff Reports 217, Federal Reserve Bank of New York.
  3. Aleksander Berentsen & Gabriele Camera & Christopher Waller, . "The Distribution of Money Balances and the Non-Neutrality of Money," IEW - Working Papers 220, Institute for Empirical Research in Economics - University of Zurich.
  4. Sun, Hongfei, 2007. "Aggregate uncertainty, money and banking," Journal of Monetary Economics, Elsevier, vol. 54(7), pages 1929-1948, October.
  5. Li, Yan & Carroll, Wayne, 2011. "The payment mechanisms and liquidity effects," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 656-667.
  6. Sun, Hongfei, 2007. "Banking, Inside Money and Outside Money," MPRA Paper 4504, University Library of Munich, Germany.
  7. Rojas Breu, Mariana, 2013. "The welfare effect of access to credit," Economics Papers from University Paris Dauphine 123456789/7353, Paris Dauphine University.
  8. Sissoko, Carolyn, 2007. "An Idealized View of Financial Intermediation," Economics Discussion Papers 2007-16, Kiel Institute for the World Economy.
  9. Dror Goldberg, 2012. "The tax-foundation theory of fiat money," Economic Theory, Springer, vol. 50(2), pages 489-497, June.
  10. Chung, Kyuil, 2009. "Does the liquidity effect guarantee a positive term premium?," Economic Modelling, Elsevier, vol. 26(5), pages 893-903, September.

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  1. Advanced Monetary Theory and Policy (ECON 447)

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