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Money and Crime in a Cash-In- Advance Model

Author

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  • Hyung Sun Choi

    () (Department of Financial Institution and Regulation, Korea Insurance Research Institute, 12th Floor K.F.P.A. Building, Yoido-Dong, Youngdeungpo-Gu, Seoul, 150-606, South Korea)

Abstract

A cash-in-advance model, in which holding money is risky, is constructed to study the coexistence of multiple means of payment and monetary policy implications. In steady-state equilibrium, the marginal rate of substitution of cash goods for credit goods depends on the crime rate as well as the nominal interest rate. Credit may be in use, although the return on money is not positive. With theft, a money injection reduces the crime rate and makes cash more preferable for a greater variety of goods. Inflation improves welfare. However, without theft, inflation makes credit more preferable and decreases welfare. In general, the Friedman rule is not optimal.

Suggested Citation

  • Hyung Sun Choi, 2011. "Money and Crime in a Cash-In- Advance Model," Southern Economic Journal, Southern Economic Association, vol. 77(3), pages 652-673, January.
  • Handle: RePEc:sej:ancoec:v:77:3:y:2011:p:652-673
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    File URL: http://dx.doi.org/10.4284/sej.2011.77.3.652
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    Cited by:

    1. Choi, Hyung Sun, 2014. "Money, credit, risk of loss, and limited participation," International Review of Economics & Finance, Elsevier, vol. 34(C), pages 9-23.
    2. repec:eee:quaeco:v:65:y:2017:i:c:p:378-387 is not listed on IDEAS
    3. Choi, Hyung Sun, 2013. "Money and risk of loss in an asset market segmentation model," International Review of Economics & Finance, Elsevier, vol. 25(C), pages 146-155.

    More about this item

    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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