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Money and credit as means of payment: A new monetarist approach

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Listed author(s):
  • Lotz, Sébastien
  • Zhang, Cathy

Abstract

We study the choice of payment instruments in a model with money and credit, where sellers must invest in a record-keeping technology to accept credit and buyers have limited commitment. Our model captures the two-sided market interaction between consumers and retailers that can generate multiple equilibria. Limited commitment yields an endogenous debt limit that depends on monetary policy. Money and credit coexist for a range of parameters, and bargaining related hold-up problems can lead to inefficiencies in the adoption of monitoring technologies. Changes in monetary policy generate multiplier effects in the credit market due to complementarities between consumer borrowing and the adoption of credit by merchants.

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File URL: http://www.sciencedirect.com/science/article/pii/S0022053115001441
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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 164 (2016)
Issue (Month): C ()
Pages: 68-100

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Handle: RePEc:eee:jetheo:v:164:y:2016:i:c:p:68-100
DOI: 10.1016/j.jet.2015.08.003
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

Keywords: Coexistence of money and credit; Costly record-keeping; Limited commitment;

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Find related papers by JEL classification:
  • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
  • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
  • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
  • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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Cited by:

  1. Randall Wright & Cathy Zhang & Guillaume Rocheteau, 2016. "Corporate Finance and Monetary Policy," 2016 Meeting Papers 97, Society for Economic Dynamics.
  2. Chao Gu & Fabrizio Mattesini & Randall Wright, 2016. "Money and Credit Redux," Econometrica, Econometric Society, vol. 84, pages 1-32, 01.
  3. Ohik Kwon & Manjong Lee, 2016. "Credit Market Frictions and Coessentiality of Money and Credit," Discussion Paper Series 1602, Institute of Economic Research, Korea University.
  4. Tai-Wei Hu & Luis Araujo, 2015. "Optimal Monetary Interventions in Credit Markets," 2015 Meeting Papers 176, Society for Economic Dynamics.
  5. Lucy Qian Liu & Liang Wang & Randall Wright, 2015. "Costly Credit and Sticky Prices," Working Papers 201505, University of Hawaii at Manoa, Department of Economics.
  6. Chao Gu & Randall Wright, 2016. "Monetary Mechanisms," Working Papers 1601, Department of Economics, University of Missouri.
  7. Chao Gu & Fabrizio Mattesini & Randall Wright, 2015. "Money and Credit Redux," Working Papers 1508, Department of Economics, University of Missouri.

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