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Money and Loans

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  • Dan Bernhardt

Abstract

The conditions under which money is essential to support a Pareto optimum, those where loan mechanisms suffice, and those such that both are essential is examined. In the absence of a coincidence of wants, loans and/or money are necessary to facilitate exchange. In a large economy with a limited communication technology, the expected consequences to reneging are insufficient for the repayment of the utility maximizing level of loans to be time consistent. In contrast, redeemability of money is not associated with a particular agent so money has no time consistency problems. Consequently, in large economies money is essential. If, additionally, individual Clower constraints bind, loans and money are both essential.

Suggested Citation

  • Dan Bernhardt, 1985. "Money and Loans," Working Paper 643, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:643
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    Cited by:

    1. Jafarey, Saqib & Rupert, Peter, 2001. "Limited Commitment, Money, and Credit," Journal of Economic Theory, Elsevier, vol. 99(1-2), pages 22-58, July.
    2. Hancock, Diana & Humphrey, David B., 1997. "Payment transactions, instruments, and systems: A survey," Journal of Banking & Finance, Elsevier, vol. 21(11-12), pages 1573-1624, December.
    3. Xavier Cuadras‐Morató, 2009. "Circulation Of Private Notes During A Currency Shortage," Manchester School, University of Manchester, vol. 77(4), pages 461-478, July.
    4. Wang, Yong & Zhou, Hanqing, 2001. "Money and credit in liquidity provision," Journal of Banking & Finance, Elsevier, vol. 25(11), pages 2041-2067, November.
    5. Li, Ying-Syuan & Li, Yiting, 2013. "Liquidity and asset prices: A new monetarist approach," Journal of Monetary Economics, Elsevier, vol. 60(4), pages 426-438.
    6. Hayashi, Fumio & Matsui, Akihiko, 1996. "A Model of Fiat Money and Barter," Journal of Economic Theory, Elsevier, vol. 68(1), pages 111-132, January.
    7. repec:dau:papers:123456789/3515 is not listed on IDEAS

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