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The value of inside and outside money Author info | Abstract | Publisher info | Download info | Related research | Statistics James Bullard
Bruce D. Smith
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We study dynamic economies in which agents may have incentives to hold both privately-issued (a.k.a. inside) and publicly-issued (a.k.a. outside) circulating liabilities as part of an equilibrium. Our analysis emphasizes spatial separation and limited communication as frictions that motivate monetary exchange. We isolate conditions under which a combination of inside and outside money does and does not allow the economy to achieve a first-best allocation of resources. We also study the extent to which the use of private circulating liabilities alone, or the use of public circulating liabilities alone, can address the frictions that lead to monetary exchange. We identify conditions under which both types of liabilities are essential to efficiency. However, even when these conditions are satisfied, we show that political economy considerations may lead to a prohibition against private circulating liabilities. Finally, we analyze the consequences of such a prohibition for the determinacy of equilibrium, and for endogenously arising volatility.
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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number
2000-027.
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Date of creation: 2001Date of revision:
Handle: RePEc:fip:fedlwp:2000-027Contact details of provider: Postal: P.O. Box 442, St. Louis, MO 63166 Fax: (314)444-8753 Web page: http://www.stlouisfed.org/ More information through EDIRC
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Keywords: Money Money theory Other versions of this item:
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.: Sargent, Thomas J & Wallace, Neil, 1982.
"The Real-Bills Doctrine versus the Quantity Theory: A Reconsideration ,"
Journal of Political Economy ,
University of Chicago Press, vol. 90(6), pages 1212-36, December.
[Downloadable!] (restricted)
Burdett, Kenneth & Trejos, Alberto & Wright, Randall, 2001.
"Cigarette Money ,"
Journal of Economic Theory ,
Elsevier, vol. 99(1-2), pages 117-142, July.
[Downloadable!] (restricted)
Bruce Champ & Bruce D. Smith & Stephen D. Williamson, 1996.
"Currency Elasticity and Banking Panics: Theory and Evidence ,"
Canadian Journal of Economics ,
Canadian Economics Association, vol. 29(4), pages 828-64, November.
[Downloadable!] (restricted)
Other versions:
Champ, B. & Smith, B.D., 1991.
"Currency Elasticity and Banking Panics: theory and Evidence ,"
University of Western Ontario, The Centre for the Study of International Economic Relations Working Papers
9109, University of Western Ontario, The Centre for the Study of International Economic Relations.
Champ, B. & Snith, B.D. & Williamson, D.S., 1991.
"Currency Elasticity and Banking Panics: Theory and Evidence ,"
RCER Working Papers
292, University of Rochester - Center for Economic Research (RCER).
Townsend, Robert M, 1987.
"Economic Organization with Limited Communication ,"
American Economic Review ,
American Economic Association, vol. 77(5), pages 954-71, December.
[Downloadable!] (restricted)
Temzelides, Ted & Williamson, Stephen D., 2001.
"Private money, settlement, and discounts ,"
Carnegie-Rochester Conference Series on Public Policy ,
Elsevier, vol. 54(1), pages 85-108, June.
[Downloadable!] (restricted)
Smith, Bruce D & Weber, Warren E, 1999.
"Private Money Creation and the Suffolk Banking System ,"
Journal of Money, Credit and Banking ,
Blackwell Publishing, vol. 31(3), pages 624-59, August.
Other versions:
Bruce D. Smith & Warren E. Weber, 1998.
"Private money creation and the Suffolk Banking System ,"
Working Paper
9821, Federal Reserve Bank of Cleveland.
[Downloadable!] Bruce D. Smith & Warren E. Weber, 1998.
"Private money creation and the Suffolk Banking System ,"
Working Papers
591, Federal Reserve Bank of Minneapolis.
[Downloadable!] Bruce D. Smith & Warren E. Weber, 1999.
"Private money creation and the Suffolk Banking System ,"
Proceedings ,
Federal Reserve Bank of Cleveland, pages 624-667.
Williamson, Stephen D., 1992.
"Laissez-faire banking and circulating media of exchange ,"
Journal of Financial Intermediation ,
Elsevier, vol. 2(2), pages 134-167, June.
[Downloadable!] (restricted)
Kiyotaki, Nobuhiro & Wright, Randall, 1993.
"A Search-Theoretic Approach to Monetary Economics ,"
American Economic Review ,
American Economic Association, vol. 83(1), pages 63-77, March.
[Downloadable!] (restricted)
Williamson, Stephen D, 1999.
"Private Money ,"
Journal of Money, Credit and Banking ,
Blackwell Publishing, vol. 31(3), pages 469-91, August.
Other versions: 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.
[Downloadable!] (restricted)
Stacey L. Schreft, 1997.
"Looking forward : the role for government in regulating electronic cash ,"
Economic Review ,
Federal Reserve Bank of Kansas City, issue Q IV, pages 59-84.
[Downloadable!]
Cavalcanti, Ricardo de O & Wallace, Neil, 1999.
"Inside and Outside Money as Alternative Media of Exchange ,"
Journal of Money, Credit and Banking ,
Blackwell Publishing, vol. 31(3), pages 443-57, August.
Other versions: Gale, David, 1973.
"Pure exchange equilibrium of dynamic economic models ,"
Journal of Economic Theory ,
Elsevier, vol. 6(1), pages 12-36, February.
[Downloadable!] (restricted)
Costas Azariadis & James Bullard & Lee E. Ohanian, 1998.
"Complex eigenvalues and trend-reverting fluctuations ,"
Staff Report
255, Federal Reserve Bank of Minneapolis.
[Downloadable!]
Full
references 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.)
Carolyn Sissoko, 2006.
"An Idealized View of Financial Intermediation ,"
Occidental Economics Working Papers
6, Occidental College, Department of Economics, revised Jun 2007.
[Downloadable!]
Other versions:
Sissoko, Carolyn, 2007.
"An Idealized View of Financial Intermediation ,"
Economics Discussion Papers
2007-16, Kiel Institute for the World Economy.
[Downloadable!] Sissoko, Carolyn, 2007.
"An Idealized View of Financial Intermediation ,"
Economics - The Open-Access, Open-Assessment E-Journal ,
Kiel Institute for the World Economy, vol. 1(5).
[Downloadable!] Marco Arnone & Luca Bandiera, 2004.
"Monetary Policy, Monetary Areas, and Financial Development with Electronic Money ,"
IMF Working Papers
04/122, International Monetary Fund.
[Downloadable!]
Hongfei Sun, 2007.
"Banking, Inside Money and Outside Money ,"
Working Papers
1146, Queen's University, Department of Economics.
[Downloadable!]
Other versions: James Bullard & Bruce D. Smith, 2002.
"Intermediaries and payments instruments ,"
Working Papers
2002-006, Federal Reserve Bank of St. Louis.
[Downloadable!]
Other versions: 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: Xavier Cuadras Morató, 2005.
"Circulation of Private Notes during a Currency Shortage ,"
Economics Working Papers
811, Department of Economics and Business, Universitat Pompeu Fabra.
[Downloadable!]
Carolyn Sissoko, 2002.
"Short-Term Credit: A Monetary Channel Linking Finance to Growth ,"
Occidental Economics Working Papers
8, Occidental College, Department of Economics, revised Jun 2006.
[Downloadable!]
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