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Payments Systems with Random Matching and Private Information

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  • Williamson, Stephen D

Abstract

A model of dynamic risk-sharing is constructed where agents meet pairwise and at random, and there is private information about endowments. Risk sharing is accomplished through dynamic contracts involving credit transactions and through monetary exchange. A Friedman rule is optimal, and solutions are computed. The welfare costs of inflation and the effects of inflation on the distribution of consumption and wealth are small for an economy calibrated to U.S. data. However, these effects are large when the credit system is relatively unsophisticated.

Suggested Citation

  • Williamson, Stephen D, 1998. "Payments Systems with Random Matching and Private Information," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(3), pages 551-569, August.
    • Handle: RePEc:mcb:jmoncb:v:30:y:1998:i:3:p:551-69
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    References listed on IDEAS

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    9. 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.
    10. Aiyagari, S. Rao & Williamson, Stephen, 1997. "Money, Credit, and Allocation Under Complete Dynamic Contracts and Incomplete Markets," Working Papers 97-20, University of Iowa, Department of Economics.
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    13. Trejos, Alberto & Wright, Randall, 1995. "Search, Bargaining, Money, and Prices," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 118-141, February.
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    Cited by:

    1. 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.
    2. Li, Shuyun May, 2013. "Optimal lending contracts with long run borrowing constraints," Journal of Economic Dynamics and Control, Elsevier, vol. 37(5), pages 964-983.
    3. Stephen Williamson, 2000. "The Research Agenda: Payment Systems and Private Money," EconomicDynamics Newsletter, Review of Economic Dynamics, vol. 2(1), November.
    4. 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.
    5. Ed Nosal & Guillaume Rocheteau, 2006. "The economics of payments," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Feb.
    6. Williamson, Stephen D., 2003. "Payments systems and monetary policy," Journal of Monetary Economics, Elsevier, vol. 50(2), pages 475-495, March.

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    More about this item

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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