IDEAS home Printed from https://ideas.repec.org/a/eee/jmacro/v33y2011i4p656-667.html
   My bibliography  Save this article

The payment mechanisms and liquidity effects

Author

Listed:
  • Li, Yan
  • Carroll, Wayne

Abstract

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.

Suggested Citation

  • Li, Yan & Carroll, Wayne, 2011. "The payment mechanisms and liquidity effects," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 656-667.
  • Handle: RePEc:eee:jmacro:v:33:y:2011:i:4:p:656-667
    DOI: 10.1016/j.jmacro.2011.09.002
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0164070411000632
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. 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 211-227, July.
    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. 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.
    4. 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.
    5. Charles Goodhart, 2000. "Can Central Banking Survive the IT Revolution?," FMG Special Papers sp125, Financial Markets Group.
    6. Lucas, Robert Jr., 1990. "Liquidity and interest rates," Journal of Economic Theory, Elsevier, vol. 50(2), pages 237-264, April.
    7. Stephen Williamson, 2004. "Limited participation, private money, and credit in a spatial model of money," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 24(4), pages 857-875, November.
    8. 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.
    9. Shy, Oz & Tarkka, Juha, 2002. "The Market for Electronic Cash Cards," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(2), pages 299-314, May.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Stored value; Private money; Payment mechanism; Liquidity effect; Segmented markets;

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jmacro:v:33:y:2011:i:4:p:656-667. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/inca/622617 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.