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Why Should Money Lose Value With Time: Boosting Economy In The Era Of E-Money

Author

Listed:
  • Roman N. Bozhya-Volya

    (National Research University Higher School of Economics)

  • Alina S. Rybak

    (National Research University Higher School of Economics)

Abstract

We investigate new instrument of monetary policy which is able to stimulate economy in the age of electronic money. Demurrage (negative interest on money holdings) is a non inflationary monetary instrument that is able to boost the rate of economic transactions. We show with the search-theoretic model that the search effort of buyers is increasing in demurrage fees and higher search effort is associated with the lower price level and higher aggregate output. We find that aggregate welfare is higher when demurrage is imposed compared to quantitative easing policy. While demurrage is complicated to impose on banknotes it is easily set on electronic money which makes this unconventional policy measure more technologically feasible

Suggested Citation

  • Roman N. Bozhya-Volya & Alina S. Rybak, 2019. "Why Should Money Lose Value With Time: Boosting Economy In The Era Of E-Money," HSE Working papers WP BRP 207/EC/2019, National Research University Higher School of Economics.
    • Handle: RePEc:hig:wpaper:207/ec/2019
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    demurrage; negative interest on money; monetary policy; government policy in recession;
    All these keywords.

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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