Inflation, Credit, and Indexed Unit of Account
AbstractA simple monetary model is constructed to study the implications of an indexed unit of account (Indexed-UoA). In an economy with an Indexed-UoA, credit trade friction attributed to inflation is resolved and there is no redistributional effect from unexpected inflation between debtors and creditors. However, in an economy without an Indexed-UoA, credit trades occur only if inflation is not too high and unexpected inflation renders debtors better off but creditors worse off. Adopting a medium of exchange as a unit of account is most apposite for a low-inflation economy, whereas introducing an alternative Indexed-UoA enhances welfare in an economy where inflation undermines credit trades.
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Bibliographic InfoPaper provided by Institute of Economic Research, Korea University in its series Discussion Paper Series with number 1307.
Date of creation: 2013
Date of revision:
indexed unit of account; deferred payment; inflation; welfare;
Find related papers by JEL classification:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-01-10 (All new papers)
- NEP-CBA-2014-01-10 (Central Banking)
- NEP-MAC-2014-01-10 (Macroeconomics)
- NEP-MON-2014-01-10 (Monetary Economics)
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