Essential Interest-Bearing Money
AbstractIn this paper, I provide a rationale for why money should earn interest; or, what amounts to the same thing, why risk-free claims to non-interest-bearing money should trade at discount. I argue that interest-bearing money is essential when individual money balances are private information. The analysis also suggests one reason for why it is sufficient (as well as necessary) for interest to be paid only on large money balances; or equivalently, why bonds need only be issued in large denominations.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 4780.
Date of creation: 07 Sep 2007
Date of revision:
Money; Bonds; Monetary Policy; Friedman Rule;
Other versions of this item:
- David Andolfatto, 2008. "Essential Interest-Bearing Money," EIEF Working Papers Series 0802, Einaudi Institute for Economics and Finance (EIEF), revised Oct 2008.
- David Andolfatto, 2009. "Essential interest-bearing money," Working Papers 2009-044, Federal Reserve Bank of St. Louis.
- David Andolfatto, 2007. "Essential Interest-Bearing Money," Discussion Papers dp07-16, Department of Economics, Simon Fraser University.
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-09-16 (All new papers)
- NEP-CBA-2007-09-16 (Central Banking)
- NEP-DGE-2007-09-16 (Dynamic General Equilibrium)
- NEP-MAC-2007-09-16 (Macroeconomics)
- NEP-MON-2007-09-16 (Monetary Economics)
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