IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/19607.html

Credit Enforcement and Monetary-Policy Transmission

Author

Listed:
  • Althanns, Markus
  • van Buggenum, Hugo
  • Gersbach, Hans

Abstract

We study how the enforceability of credit contracts matters for the welfare effect of private-money creation and the transmission of long-run inflation. For this purpose, we write a model of directed and competitive search where sellers borrow against their future search-market income. Intermediaries transform the arising claims into private money, which buyers use alongside fiat money for search-market transactions. Inflation stimulates borrowing by curbing real interest rates. Under strong enforcement, sellers can commit ex ante to more search to enhance their future income and thus their borrowing capacity; trade therefore accelerates. Under weak enforcement, commitment is not feasible, so that the inflation-driven increase in borrowing distorts ex-post search incentives and thus decelerates trade. We calibrate the strong- and weak-enforcement economies to U.S. data. The extent of private-money creation is close to optimal in the strong-enforcement calibration, whereas private-money creation impairs welfare in the weak-enforcement calibration.

Suggested Citation

  • Althanns, Markus & van Buggenum, Hugo & Gersbach, Hans, 2024. "Credit Enforcement and Monetary-Policy Transmission," CEPR Discussion Papers 19607, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19607
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP19607
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    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
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:19607. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CEPR (email available below). General contact details of provider: https://cepr.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.