Capital in the Payments System
Capital is required to support the payments system in modern economies with well developed financial markets. Financial innovations raise the marginal product of capital in this usage. This suggests that there are general equilibrium consequences associated with an optimal selection of a payments system that includes barter, money, and a capital-based accounting system. In this paper, goods are differentiated with respect to the medium of exchange associated with their acquisition, which is endogenously determined as a consequence of explicit trading frictions. The response of the economy to endowment, production, and payments system shocks, including financial innovations, is examined. Copyright 1992 by The London School of Economics and Political Science.
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Volume (Year): 59 (1992)
Issue (Month): 235 (August)
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