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A model of circulating private debt

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  • Robert M. Townsend
  • Neil Wallace

Abstract

We study the possible specialness of circulating as opposed to noncirculating private securities using models whose equilibria imply the existence of both. The models are pure exchange setups with spatial separation and with the potential for a variety of intertemporal trades. We find a sense in which unregulated circulating private securities are troublesome. It can happen that in order for an equilibrium to exist, the amounts of circulating debts issued at the same time in spatially and informationally separated markets have to satisfy restrictions not implied by individual maximization and market clearing in each market separately.

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  • Robert M. Townsend & Neil Wallace, 1982. "A model of circulating private debt," Staff Report 83, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmsr:83
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    References listed on IDEAS

    as
    1. Ostroy, Joseph M & Starr, Ross M, 1974. "Money and the Decentralization of Exchange," Econometrica, Econometric Society, vol. 42(6), pages 1093-1113, November.
    2. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 24(Win), pages 14-23.
    3. Allan M. Feldman, 1973. "Bilateral Trading Processes, Pairwise Optimally, and Pareto Optimality," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 40(4), pages 463-473.
    4. Harris, Milton, 1979. "Expectations and Money in a Dynamic Exchange Model," Econometrica, Econometric Society, vol. 47(6), pages 1403-1419, November.
    5. Ostroy, Joseph M, 1973. "The Informational Efficiency of Monetary Exchange," American Economic Review, American Economic Association, vol. 63(4), pages 597-610, September.
    6. Bryant, John, 1981. "Bank Collapse and Depression," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 13(4), pages 454-464, November.
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    Cited by:

    1. Azariadis, Costas & Bullard, James & Smith, Bruce D., 2001. "Private and Public Circulating Liabilities," Journal of Economic Theory, Elsevier, vol. 99(1-2), pages 59-116, July.
    2. Nobuhiro Kiyotaki & John Moore, 2018. "Inside Money and Liquidity," Working Papers 2018-8, Princeton University. Economics Department..

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