IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

The economics of payments

  • Ed Nosal
  • Guillaume Rocheteau

In this paper we provide a survey of the payment literature in a unified framework. The environment is a variant of the Lagos and Wright (2005) model of monetary exchange, where some trades occur in bilateral meetings while others occur in more or less decentralized markets. We use this basic environment to introduce alternative sets of trading frictions that give rise to different payments instruments and/or payments institutions. We investigate credit economies, monetary economies, and economies in which money and credit coexist. We also study alternative assets, such as foreign exchange, capital (equity), and government liabilities, which can be used as payment instruments in conjunction with money. We introduce banks as deposit-taking institutions whose liabilities circulate in the economy. We also provide an extension in which the process of the settlement of debt for money is modeled and the potential social costs of settlement are characterized. Finally, we investigate government policy responses to the social costs introduced by various trading frictions.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.clevelandfed.org/Research/PolicyDis/no14.pdf
Download Restriction: no

File URL: https://fraser.stlouisfed.org/scribd/?item_id=495647&filepath=/docs/historical/frbclev/pdp/frbclv_pdp_200602_014.pdf
Download Restriction: no

Article provided by Federal Reserve Bank of Cleveland in its journal Policy Discussion Papers.

Volume (Year): (2006)
Issue (Month): Feb ()
Pages:

as
in new window

Handle: RePEc:fip:fedcpd:y:2006:i:feb:n:14
Contact details of provider: Postal:
1455 East 6th St., Cleveland OH 44114

Phone: 216.579.2000
Web page: http://www.clevelandfed.org/

More information through EDIRC

Order Information: Email:


References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Ricardo Cavalcanti & Andres Erosa & Ted Temzelides, 1998. "Private Money and Reserve Management in a Random Matching Model," Macroeconomics 9803008, EconWPA.
  2. Ostroy, Joseph M. & Starr, Ross M., 1990. "The transactions role of money," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 1, chapter 1, pages 3-62 Elsevier.
  3. Green, Edward J. & Zhou, Ruilin, 1998. "A Rudimentary Random-Matching Model with Divisible Money and Prices," Journal of Economic Theory, Elsevier, vol. 81(2), pages 252-271, August.
  4. Francois R. Velde & Warren E. Weber & Randall Wright, . "A Model of Commodity Money, With Application to Gresham's Law and the Debasement Puzzle," CARESS Working Papres 97-7, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  5. Shouyong Shi, 2003. "Liquidity, Interest Rates and Output," Levine's Bibliography 666156000000000250, UCLA Department of Economics.
  6. Narayana R. Kocherlakota, 1996. "Money is memory," Staff Report 218, Federal Reserve Bank of Minneapolis.
  7. S. Rao Aiyagari & Stephen D. Williamson, 1999. "Credit in a Random Matching Model with Private Information," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 36-64, January.
  8. Shouyong Shi, 1996. "Credit and Money in a Search Model with Divisible Commodities," Review of Economic Studies, Oxford University Press, vol. 63(4), pages 627-652.
  9. Townsend, Robert M, 1987. "Economic Organization with Limited Communication," American Economic Review, American Economic Association, vol. 77(5), pages 954-71, December.
  10. Dean Corbae & Joseph Ritter, 2004. "Decentralized credit and monetary exchange without public record keeping," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 24(4), pages 933-951, November.
  11. Shouyong Shi, 2005. "Nominal Bonds And Interest Rates," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(2), pages 579-612, 05.
  12. Trejos, Alberto & Wright, Randall, 1995. "Search, Bargaining, Money, and Prices," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 118-41, February.
  13. Ricardo Lagos & Randall Wright, 2004. "A unified framework for monetary theory and policy analysis," Staff Report 346, Federal Reserve Bank of Minneapolis.
  14. Green, Edward-J, 1997. "Money and Debt in the Structure of Payments," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 15(1), pages 63-87, May.
  15. Aleksander Berentsen & Guillaume Rocheteau, . "On the Efficiency of Monetary Exchange:How Divisibility of Money Matters," IEW - Working Papers 101, Institute for Empirical Research in Economics - University of Zurich.
  16. Bryant, John & Wallace, Neil, 1979. "The Inefficiency of Interest-bearing National Debt," Journal of Political Economy, University of Chicago Press, vol. 87(2), pages 365-81, April.
  17. Alberto Trejos & Randall Wright, 1996. "Search-theoretic models of international currency," Review, Federal Reserve Bank of St. Louis, issue May, pages 117-132.
  18. Stephen D. Williamson, 1998. "Payments Systems with Random Matching and Private Information," Game Theory and Information 9802004, EconWPA.
  19. Sargent, Thomas J. & Wallace, Meil, 1983. "A model of commodity money," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 163-187.
  20. Shouyong Shi, 1998. "Search, Inflation, and Capital Accumulation," Working Papers 971, Queen's University, Department of Economics.
  21. Neil Wallace, 2000. "Knowledge of individual histories and optimal payment arrangements," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 11-21.
  22. Li, Yiting, 2001. "A Search Model of Money and Circulating Private Debt with Applications to Monetary Policy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 925-46, November.
  23. Ostroy, Joseph M & Starr, Ross M, 1974. "Money and the Decentralization of Exchange," Econometrica, Econometric Society, vol. 42(6), pages 1093-1113, November.
  24. Kiyotaki, Nobuhiro & Wright, Randall, 1991. "A contribution to the pure theory of money," Journal of Economic Theory, Elsevier, vol. 53(2), pages 215-235, April.
  25. Berentsen, Aleksander & Molico, Miguel & Wright, Randall, 2002. "Indivisibilities, Lotteries, and Monetary Exchange," MPRA Paper 68582, University Library of Munich, Germany.
  26. Kranton, Rachel E, 1996. "Reciprocal Exchange: A Self-Sustaining System," American Economic Review, American Economic Association, vol. 86(4), pages 830-51, September.
  27. Williamson, Stephen D, 1999. "Private Money," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 469-91, August.
  28. David K. Levine, 1991. "Asset Trading Mechanisms and Expansionary Policy," Levine's Working Paper Archive 43, David K. Levine.
  29. Temzelides, Ted & Williamson, Stephen D., 2001. "Payments Systems Design in Deterministic and Private Information Environments," Journal of Economic Theory, Elsevier, vol. 99(1-2), pages 297-326, July.
  30. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August.
  31. Li, Yiting, 2002. "Government transaction policy and Gresham's law," Journal of Monetary Economics, Elsevier, vol. 49(2), pages 435-453, March.
  32. Miguel Molico, 2006. "The Distribution Of Money And Prices In Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(3), pages 701-722, 08.
  33. Aiyagari, S. Rao & Williamson, Stephen, 1997. "Money and Dynamic Credit Arrangements with Private Information," Working Papers 97-19, University of Iowa, Department of Economics.
  34. Stephen D. Williamson, 2002. "Private money and counterfeiting," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 37-57.
  35. Kiminori Matsuyama & Nobuhiro Kiyotaki & Akihiko Matsui, 1993. "Toward a Theory of International Currency," Review of Economic Studies, Oxford University Press, vol. 60(2), pages 283-307.
  36. S. Rao Aiyagari & Neil Wallace & Randall Wright, 1996. "Coexistence of money and interest-bearing securities," Working Papers 550, Federal Reserve Bank of Minneapolis.
  37. Ricardo Lagos & Guillaume Rocheteau, 2006. "Money and capital as competing media of exchange," Working Paper 0608, Federal Reserve Bank of Cleveland.
  38. Cavalcanti, Ricardo de O & Wallace, Neil, 1999. "Inside and Outside Money as Alternative Media of Exchange," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 443-57, August.
  39. Ruilin Zhou, 2000. "Understanding intraday credit in large-value payment systems," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q III, pages 29-44.
  40. Ruilin Zhou, 1997. "Currency Exchange in a Random Search Model," Review of Economic Studies, Oxford University Press, vol. 64(2), pages 289-310.
  41. S. Rao Aiyagari & Neil Wallace, 1995. "Government transaction policy, the medium of exchange, and welfare," Working Papers 516, Federal Reserve Bank of Minneapolis.
  42. Burdett, Kenneth & Trejos, Alberto & Wright, Randall, 2001. "Cigarette Money," Journal of Economic Theory, Elsevier, vol. 99(1-2), pages 117-142, July.
  43. S. Boragan Aruoba & Randall Wright, 2002. "Search, money and capital: a neoclassical dichotomy," Working Paper 0208, Federal Reserve Bank of Cleveland.
  44. Neil Wallace, 1983. "A legal restrictions theory of the demand for "money" and the role of monetary policy," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win.
  45. Alberto Trejos & Randall Wright, 1996. "Search-theoretic models of international currency," Proceedings, Federal Reserve Bank of St. Louis, issue May, pages 117-132.
  46. Allen Head & Shouyong Shi, 2000. "A Fundamental Theory of Exchange Rates and Direct Currency Trades," Working Papers 993, Queen's University, Department of Economics.
  47. Shouyong Shi, 2002. "The Extent of the Market and the Optimal Degree of Specialization," Working Papers shouyong-02-02, University of Toronto, Department of Economics.
  48. Peter Diamond, 1990. "Pairwise Credit in Search Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 105(2), pages 285-319.
  49. Freeman, Scott, 1996. "Clearinghouse banks and banknote over-issue," Journal of Monetary Economics, Elsevier, vol. 38(1), pages 101-115, August.
  50. Shi Shougong, 1995. "Money and Prices: A Model of Search and Bargaining," Journal of Economic Theory, Elsevier, vol. 67(2), pages 467-496, December.
  51. Shouyong Shi, 1997. "A Divisible Search Model of Fiat Money," Econometrica, Econometric Society, vol. 65(1), pages 75-102, January.
  52. Jin, Yi & Temzelides, Ted, 1998. "On the Local Interaction of Money and Credit," Working Papers 99-05, University of Iowa, Department of Economics.
  53. Freeman, Scott, 1996. "The Payments System, Liquidity, and Rediscounting," American Economic Review, American Economic Association, vol. 86(5), pages 1126-38, December.
  54. Diamond, Peter A, 1984. "Money in Search Equilibrium," Econometrica, Econometric Society, vol. 52(1), pages 1-20, January.
  55. N/A, 1996. "Note:," Foreign Trade Review, Indian Institute of Foreign Trade, vol. 31(1-2), pages 1-1, January.
  56. Diamond, Peter, 1987. "Multiple Equilibria in Models of Credit," American Economic Review, American Economic Association, vol. 77(2), pages 82-86, May.
  57. Kiyotaki, Nobuhiro & Wright, Randall, 1993. "A Search-Theoretic Approach to Monetary Economics," American Economic Review, American Economic Association, vol. 83(1), pages 63-77, March.
  58. Ping He & Lixin Huang & Randall Wright, 2005. "Money And Banking In Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(2), pages 637-670, 05.
  59. Ben R. Craig & Christopher J. Waller, 2000. "Dual-currency economies as multiple-payment systems," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 2-13.
  60. Li, Yiting & Wright, Randall, 1998. "Government Transaction Policy, Media of Exchange, and Prices," Journal of Economic Theory, Elsevier, vol. 81(2), pages 290-313, August.
  61. Townsend, Robert M, 1989. "Currency and Credit in a Private Information Economy," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1323-44, December.
  62. Ricardo de O. Cavalcanti & Neil Wallace, 1999. "A model of private bank-note issue," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 104-136, January.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:fip:fedcpd:y:2006:i:feb:n:14. 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: (4D Library)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.