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Inside-outside money competition

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Author Info
Ramon Marimon
Juan Pablo Nicolini
Pedro Teles

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Abstract

We study how competition from privately supplied currency substitutes affects monetary equilibria. Whenever currency is inefficiently provided, inside money competition plays a disciplinary role by providing an upper bound on equilibrium inflation rates. Furthermore, if "inside monies" can be produced at a sufficiently low cost, outside money is driven out of circulation. Whenever a 'benevolent' government can commit to its fiscal policy, sequential monetary policy is efficient and inside money competition plays no role.

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Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-03-09.

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Date of creation: 2003
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Handle: RePEc:fip:fedhwp:wp-03-09

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Keywords: Money ; Payment systems;

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  2. DREZE, Jacques & POLEMARCHAKIS, Heracles, 2000. "Monetary equilibria," CORE Discussion Papers 2000044, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
  3. David Humphrey & Magnus Willesson & Goran Bergendahl & Ted Lindblom, 2003. "Cost savings from electronic payments and ATMs in Europe," Working Papers 03-16, Federal Reserve Bank of Philadelphia. [Downloadable!]
  4. Taub, Bart, 1985. "Private fiat money with many suppliers," Journal of Monetary Economics, Elsevier, vol. 16(2), pages 195-208, September. [Downloadable!] (restricted)
  5. Chari, V V & Kehoe, Patrick J, 1990. "Sustainable Plans," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 783-802, August. [Downloadable!] (restricted)
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  6. Calvo, Guillermo A, 1978. "On the Time Consistency of Optimal Policy in a Monetary Economy," Econometrica, Econometric Society, vol. 46(6), pages 1411-28, November. [Downloadable!] (restricted)
  7. Juan P. Nicolini, 1993. "More on the Time Inconsistency of Optimal Monetary Policy," Economics Working Papers 56, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
  8. Lucas, Robert Jr. & Stokey, Nancy L., 1983. "Optimal fiscal and monetary policy in an economy without capital," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 55-93. [Downloadable!] (restricted)
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  9. Svensson, Lars E O, 1985. "Money and Asset Prices in a Cash-in-Advance Economy," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 919-44, October. [Downloadable!] (restricted)
  10. Marimon, R. & Nicolini, J.P. & Teles, P., 1999. "Competition and Reputation," Economics Working Papers eco99/18, European University Institute.
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  11. Abreu, Dilip, 1988. "On the Theory of Infinitely Repeated Games with Discounting," Econometrica, Econometric Society, vol. 56(2), pages 383-96, March. [Downloadable!] (restricted)
  12. Atkinson, A. B. & Stiglitz, J. E., 1972. "The structure of indirect taxation and economic efficiency," Journal of Public Economics, Elsevier, vol. 1(1), pages 97-119, April. [Downloadable!] (restricted)
  13. Woodford, M., 1997. "Doing Without Money: Controlling Inflation in a Post-Monetary World," Papers 632, Stockholm - International Economic Studies.
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  14. Klein, Benjamin, 1974. "The Competitive Supply of Money," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 6(4), pages 423-53, November. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. Javier Díaz-Giménez & Giorgia Giovannetti & Ramon Marimon & Pedro Teles, 2004. "Nominal debt as a burden on monetary policy," Working Paper Series WP-04-10, Federal Reserve Bank of Chicago. [Downloadable!]
    Other versions:
  2. David C. Mills, Jr., 2007. "Imperfect monitoring and the discounting of inside money," Finance and Economics Discussion Series 2007-58, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
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