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Multiple Means of Payment, Excess Reserves, and Monetary Policy

Author

Listed:
  • Hyung Sun Choi

    (Kyung Hee University)

  • Manjong Lee

    (Korea University)

Abstract

The effects of choosing between cash and credit as a means of payment on bank��s excess reserves are explored in the proposed model. The model incorporates the widespread recent features of payment patterns and financial services. Results suggest that credit increases excess reserves and generates leeway for banks to invest in interest-bearing assets. Given the growth rate of money, credit transactions increase, but welfare decreases. This phenomenon implies the optimality of the Friedman rule.

Suggested Citation

  • Hyung Sun Choi & Manjong Lee, 2016. "Multiple Means of Payment, Excess Reserves, and Monetary Policy," Korean Economic Review, Korean Economic Association, vol. 32, pages 5-21.
    • Handle: RePEc:kea:keappr:ker-20160630-32-1-01
    as

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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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