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Welfare-improving credit controls

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Author Info
S.L. Schreft

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Abstract

Credit controls are generally believed to result in an inefficient allocation of resources. This paper presents a counterexample. It displays a general equilibrium, multi-good model with spatial separation for which steady state equilibria exist in which both cash (i.e. fiat currency) and trade credit are used in exchange. Transaction costs, restrictions on the timing of trade, and a positive nominal interest rate cause the laissez-faire equilibrium to be non-optimal. A quantitative restriction on the use of trade credit can yield a Pareto superior allocation.

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Publisher Info
Paper provided by Federal Reserve Bank of Richmond in its series Working Paper with number 91-01.

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Date of creation: 1991
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Handle: RePEc:fip:fedrwp:91-01

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Related research
Keywords: Credit;

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References listed on IDEAS
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  1. Schreft, S L, 1992. "Transaction Costs and the Use of Cash and Credit," Economic Theory, Springer, vol. 2(2), pages 283-96, April.
  2. Lucas, Robert E, Jr, 1980. "Equilibrium in a Pure Currency Economy," Economic Inquiry, Oxford University Press, vol. 18(2), pages 203-20, April.
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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. Jeffrey M. Lacker, 1996. "Stored value cards: costly private substitutes for government currency," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 1-25. [Downloadable!]
  2. Antoine Martin, 2002. "Endogenous multiple currencies," Research Working Paper RWP 02-03, Federal Reserve Bank of Kansas City. [Downloadable!]
    Other versions:
  3. Stacey L. Schreft, 2006. "How and why do consumers choose their payment methods?," Research Working Paper RWP 06-04, Federal Reserve Bank of Kansas City. [Downloadable!]
    Other versions:
  4. Stefania Albanesi & V. V. Chari & Lawrence J. Christiano, 2003. "Expectation traps and monetary policy," Staff Report 319, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  5. Jorge Soares, 2008. "Borrowing Constraints, Parental Altruism and Welfare," Working Papers 08-12, University of Delaware, Department of Economics. [Downloadable!]
  6. Michael Dotsey & Peter Ireland, 1994. "The welfare cost of inflation in general equilibrium," Working Paper 94-04, Federal Reserve Bank of Richmond. [Downloadable!]
    Other versions:
  7. Antoine Martin, 2002. "Optimal pricing of intra-day liquidity," Research Working Paper RWP 02-02, Federal Reserve Bank of Kansas City. [Downloadable!]
    Other versions:
  8. Jeffrey M. Lacker, 1996. "Stored value cards: costly private substitutes for currency," Working Paper 96-03, Federal Reserve Bank of Richmond. [Downloadable!]
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This page was last updated on 2009-11-20.

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