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The payment mechanisms and liquidity effects

  • Li, Yan
  • Carroll, Wayne
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A general equilibrium model with multiple means of payment in segmented markets is constructed to study the liquidity effects. It is shown that, under certain conditions, stored value – money issued by private entrepreneurs weakens, but does not completely eliminate the liquidity effects that exist when stored value is prohibited. The Friedman rule can be optimal in the regime with floating stored value. The impact of monetary policy now depends not only on the monetary intervention of the central bank, but also on the quantity of the outstanding private money and its velocity.

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Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 33 (2011)
Issue (Month): 4 ()
Pages: 656-667

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Handle: RePEc:eee:jmacro:v:33:y:2011:i:4:p:656-667
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  1. Stephen Williamson, 2004. "Limited participation, private money, and credit in a spatial model of money," Economic Theory, Springer, vol. 24(4), pages 857-875, November.
  2. Stephen D. Williamson, 2009. "Transactions, Credit, and Central Banking in a Model of Segmented Markets," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(2), pages 344-362, April.
  3. Ricardo de O. Cavalcanti & Neil Wallace, 1999. "Inside and outside money as alternative media of exchange," Proceedings, Federal Reserve Bank of Cleveland, pages 443-468.
  4. Charles Goodhart, 2000. "Can Central Banking Survive the IT Revolution?," FMG Special Papers sp125, Financial Markets Group.
  5. Jeffrey M. Lacker, 1996. "Stored value cards: costly private substitutes for government currency," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 1-25.
  6. Freedman, Charles, 2000. "Monetary Policy Implementation: Past, Present and Future--Will Electronic Money Lead to the Eventual Demise of Central Banking?," International Finance, Wiley Blackwell, vol. 3(2), pages 211-27, July.
  7. Lucas, Robert Jr., 1990. "Liquidity and interest rates," Journal of Economic Theory, Elsevier, vol. 50(2), pages 237-264, April.
  8. Shy, Oz & Tarkka, Juha, 1998. "The Market for Electronic Cash Cards," Research Discussion Papers 21/1998, Bank of Finland.
  9. Li, Yan, 2009. "The theory of fiat money and private money as alternative media of exchange," International Review of Economics & Finance, Elsevier, vol. 18(4), pages 568-582, October.
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