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Inside-outside money competition

  • Marimon, Ramon
  • Nicolini, Juan Pablo
  • Teles, Pedro

We study how competition from privately supplied currency substitutes affects monetary equilibria. Whenever currency is inefficiently provided, inside money competition plays a disciplinary role by providing an upper bound on equilibrium inflation rates. Furthermore, if "inside monies" can be produced at a sufficiently low cost, outside money is driven out of circulation. Whenever a 'benevolent' government can commit to its fiscal policy, sequential monetary policy is efficient and inside money competition plays no role.

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 50 (2003)
Issue (Month): 8 (November)
Pages: 1701-1718

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Handle: RePEc:eee:moneco:v:50:y:2003:i:8:p:1701-1718
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