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Limited participation, private money, and credit in a spatial model of money

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  • Stephen Williamson

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Abstract

The purpose of this paper is to explore the implications of private money issue for the effects of monetary policy, for optimal policy, and for the role of fiat money. A locational model is constructed which gives an explicit account of the role for money and credit, and for limited financial market participation. When private money issue is prohibited, there is a liquidity effect as the result of a money injection from the central bank, but this effect goes away when private money is permitted. Private money issue changes dramatically the nature of optimal monetary policy. With private money, fiat currency is no longer used in transactions involving goods, but currency and central bank reserves play an important part in the clearing and settlement of private money returned for redemption. Copyright Springer-Verlag Berlin/Heidelberg 2004

Suggested Citation

  • Stephen Williamson, 2004. "Limited participation, private money, and credit in a spatial model of money," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 24(4), pages 857-875, November.
  • Handle: RePEc:spr:joecth:v:24:y:2004:i:4:p:857-875
    DOI: 10.1007/s00199-003-0463-3
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    File URL: http://hdl.handle.net/10.1007/s00199-003-0463-3
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    Citations

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    Cited by:

    1. Aleksander Berentsen & Gabriele Camera & C hristopher W aller, 2005. "The Distribution Of Money Balances And The Nonneutrality Of Money," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(2), pages 465-487, May.
    2. Sun, Hongfei, 2007. "Aggregate uncertainty, money and banking," Journal of Monetary Economics, Elsevier, vol. 54(7), pages 1929-1948, October.
    3. Vincent Bignon & Marc Flandreau & Stefano Ugolini, 2012. "Bagehot for beginners: the making of lender‐of‐last‐resort operations in the mid‐nineteenth century," Economic History Review, Economic History Society, vol. 65(2), pages 580-608, May.
    4. repec:dau:papers:123456789/7353 is not listed on IDEAS
    5. Chung, Kyuil, 2009. "Does the liquidity effect guarantee a positive term premium?," Economic Modelling, Elsevier, vol. 26(5), pages 893-903, September.
    6. Stephen D. Williamson, 2005. "Limited participation and the neutrality of money," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 1-20.
    7. Sissoko, Carolyn, 2007. "An Idealized View of Financial Intermediation," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 1, pages 1-29.
    8. Dror Goldberg, 2012. "The tax-foundation theory of fiat money," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 50(2), pages 489-497, June.
    9. Stella Xiuhua Huangfu & Hongfei Sun & Chenggang Zhou & Mei Dong, 2017. "A Macroeconomic Theory of Banking Oligopoly," 2017 Meeting Papers 191, Society for Economic Dynamics.
    10. Antoine Martin, 2008. "Reconciling Bagehot with the Fed's response to September 11," Staff Reports 217, Federal Reserve Bank of New York.
    11. Sun, Hongfei, 2007. "Banking, Inside Money and Outside Money," MPRA Paper 4504, University Library of Munich, Germany.
    12. Li, Yan & Carroll, Wayne, 2011. "The payment mechanisms and liquidity effects," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 656-667.

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    Keywords

    Money; Credit; Limited participation.;

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    1. Advanced Monetary Theory and Policy (ECON 447)

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