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On the Local Interaction of Money and Credit

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Author Info

  • Y. Jin

    (Univ. of Iowa)

  • T. Temzelides

    (University of Iowa)

Abstract

We study the emergence and coexistence of monetary and credit transactions in a model where exchange is decentralized. Agents belong to different villages which are informationally separated. The frequency of meetings between any two different villages decreases as their respective geographic distance from one another increases. The equilibrium mix of monetary and credit transactions is characterized as a function of the frequency of meetings among agents from different villages. Our economy may be interpreted as a medieval economy. Trade takes place only among a small set of nearby villages via the use of credit. Monetary trades emerge only after interactions with faraway villages become sufficiently frequent. Even in that case, trades among nearby villages remain non-monetized.

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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 9905001.

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Length: 21 pages
Date of creation: 06 May 1999
Date of revision:
Handle: RePEc:wpa:wuwpma:9905001

Note: 21 pages, Tex file
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  1. Melvyn Cole & Randall Wright, . "A Dynamic Equilibrium Model of Search, Bargaining, and Money," CARESS Working Papres 97-9, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
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  8. Kiyotaki, Nobuhiro & Wright, Randall, 1993. "A Search-Theoretic Approach to Monetary Economics," American Economic Review, American Economic Association, vol. 83(1), pages 63-77, March.
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  12. Shi, Shouyong, 1996. "Credit and Money in a Search Model with Divisible Commodities," Review of Economic Studies, Wiley Blackwell, vol. 63(4), pages 627-52, October.
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  17. Ellison, Glenn, 1993. "Learning, Local Interaction, and Coordination," Econometrica, Econometric Society, vol. 61(5), pages 1047-71, September.
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  19. Shouyong Shi, 1995. "Money and Prices: A Model of Search and Bargaining," Working Papers 916, Queen's University, Department of Economics.
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Cited by:
  1. Kahn, Charles M. & Roberds, William, 2009. "Why pay? An introduction to payments economics," Journal of Financial Intermediation, Elsevier, vol. 18(1), pages 1-23, January.
  2. Miquel Faig, 2004. "Divisible Money in an Economy with Villages," Levine's Bibliography 122247000000000159, UCLA Department of Economics.
  3. Huberto M. Ennis, 2006. "The problem of small change in early Argentina," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 93-111.
  4. Xavier Cuadras, 2005. "Circulation of Private Notes during a Currency Shortage," Working Papers 164, Barcelona Graduate School of Economics.
  5. Ed Nosal & Guillaume Rocheteau, 2006. "The economics of payments," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Feb.
  6. Peter Rupert & Martin Schindler & Andrei Shevchenko & Randall Wright, 2000. "The search-theoretic approach to monetary economics: a primer," Economic Review, Federal Reserve Bank of Cleveland, issue Q IV, pages 10-28.

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