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Knowledge of individual histories and optimal payment arrangements

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  • Neil Wallace

Abstract

This article reviews recent work that generalizes a random matching model of money to permit there to be a mix of transactions: some accomplished through the use of tangible media of exchange and the rest through some form of credit. The generalizations are accomplished by specifying assumptions about common knowledge of individual histories that are intermediate between no common knowledge and complete common knowledge. One of the specifications permits a simple representation of the sense in which more common knowledge is beneficial. The other permits a comparison between using outside money and using inside money as a medium of exchange.

Suggested Citation

  • Neil Wallace, 2000. "Knowledge of individual histories and optimal payment arrangements," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 11-21.
  • Handle: RePEc:fip:fedmqr:y:2000:i:sum:p:11-21:n:v.24no.3
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    References listed on IDEAS

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    1. Merton H. Miller & Daniel Orr, 1966. "A Model of the Demand for Money by Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 80(3), pages 413-435.
    2. Townsend, Robert M, 1989. "Currency and Credit in a Private Information Economy," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1323-1344, December.
    3. Mills, David C., 2007. "A Model In Which Outside And Inside Money Are Essential," Macroeconomic Dynamics, Cambridge University Press, vol. 11(03), pages 347-366, June.
    4. Shi Shougong, 1995. "Money and Prices: A Model of Search and Bargaining," Journal of Economic Theory, Elsevier, vol. 67(2), pages 467-496, December.
    5. Kocherlakota, Narayana R., 1998. "Money Is Memory," Journal of Economic Theory, Elsevier, vol. 81(2), pages 232-251, August.
    6. 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.
    7. Kocherlakota, Narayana & Wallace, Neil, 1998. "Incomplete Record-Keeping and Optimal Payment Arrangements," Journal of Economic Theory, Elsevier, vol. 81(2), pages 272-289, August.
    8. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-954, August.
    9. Ostroy, Joseph M, 1973. "The Informational Efficiency of Monetary Exchange," American Economic Review, American Economic Association, vol. 63(4), pages 597-610, September.
    10. Goldman, Steven Marc, 1974. "Flexibility and the demand for money," Journal of Economic Theory, Elsevier, vol. 9(2), pages 203-222, October.
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    Citations

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    Cited by:

    1. Ricardo Lagos, 2006. "Inside and outside money," Staff Report 374, Federal Reserve Bank of Minneapolis.
    2. Ferraris, Leo, 2010. "On the complementarity of money and credit," European Economic Review, Elsevier, vol. 54(5), pages 733-741, July.
    3. Schulz, Christian, 2011. "Liquidity requirements and payment delays - participant type dependent preferences," Working Paper Series 1291, European Central Bank.
    4. Brand, Claus & Reimers, Hans-Eggert & Seitz, Franz, 2003. "Forecasting real GDP: what role for narrow money?," Working Paper Series 254, European Central Bank.
    5. Ed Nosal & Guillaume Rocheteau, 2006. "The economics of payments," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Feb.
    6. Kawamura, Enrique, 2007. "Exchange rate regimes, banking and the non-tradable sector," Journal of Monetary Economics, Elsevier, vol. 54(2), pages 325-345, March.
    7. Claus Brand & Hans-Eggert Reimers & Franz Seitz, 2003. "Narrow Money and the Business Cycle: Theoretical aspects and euro area evdence," Macroeconomics 0303012, EconWPA.

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    Keywords

    Money ; Credit;

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