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Money, credit, risk of loss, and limited participation

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  • Choi, Hyung Sun

Abstract

An asset market segmentation model is constructed to explore the distributional effects of monetary policy on theft and the choice of costly credit and money. Money is risky to hold due to theft. Traders who participate in the asset market can have a liquidity insurance against inflation while nontraders cannot. In equilibrium, money is nonneutral. An anticipated money injection always decreases theft and improves welfare of all. However, an unanticipated money injection decreases theft for traders but increases it for nontraders. If the policy effects on nontraders dominate, then there are welfare costs of inflation and the optimal money growth rate is negative.

Suggested Citation

  • Choi, Hyung Sun, 2014. "Money, credit, risk of loss, and limited participation," International Review of Economics & Finance, Elsevier, vol. 34(C), pages 9-23.
    • Handle: RePEc:eee:reveco:v:34:y:2014:i:c:p:9-23
    DOI: 10.1016/j.iref.2014.06.006
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    Cited by:

    1. Choi, Hyung Sun, 2019. "Money, debit card, gross-settlement risk, and central banking," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).

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    More about this item

    Keywords

    Money; Credit; Theft; Market segmentation; Monetary policy;
    All these keywords.

    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

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