Credit Cards and Inflation
The introduction and widespread use of credit cards increases trading efficiency but, by also increasing the velocity of money, it causes inflation, in the absence of monetary intervention. If the monetary authority attempts to restore pre-credit card price levels by reducing the money supply, it might have to sacrifice the efficiency gains. When there is default on credit cards, there is even more inflation, and less efficiency gains. The monetary authority might then have to accept less than pre-credit card efficiency in order to restore pre-credit card price levels, or else it will have to accept inflation if it is unwilling to cut efficiency below pre-credit card levels. This could be a source of stagflation.
|Date of creation:||Jun 2009|
|Date of revision:|
|Publication status:||Published in Games and Economic Behavior (November 2010), 70(2): 325-353|
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- Pradeep Dubey & John Geanakoplos, 2003.
"Monetary Equilibrium with Missing Markets,"
Cowles Foundation Discussion Papers
1389, Cowles Foundation for Research in Economics, Yale University.
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- James Tobin, 1963. "Commercial Banks as Creators of 'Money'," Cowles Foundation Discussion Papers 159, Cowles Foundation for Research in Economics, Yale University.
- Pradeep Dubey & John Geanakoplos, 2003. "Inside and outside fiat money, gains to trade, and IS-LM," Economic Theory, Springer, vol. 21(2), pages 347-397, 03.
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