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The welfare effect of access to credit

  • Rojas Breu, Mariana

I present a model in which credit and outside money can be used as means of payment in order to analyze how access to credit affects welfare when credit markets feature limited participation. Allowing more agents to use credit has an ambiguous effect on welfare because it may make consumption-risk sharing more inefficient. I calibrate the model using U.S. data on credit-card transactions and show that the increase in access to credit from 1990 to the near present has had a slightly negative impact on welfare.

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File URL: http://basepub.dauphine.fr/xmlui/bitstream/123456789/7353/1/RB2011.pdf
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Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/7353.

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Date of creation: 2013
Date of revision:
Publication status: Published in Economic Inquiry, 2013, Vol. 51, no. 1. pp. 235-247.Length: 12 pages
Handle: RePEc:dau:papers:123456789/7353
Contact details of provider: Web page: http://www.dauphine.fr/en/welcome.html

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  1. Irina A. Telyukova, 2007. "Household Need for Liquidity and the Credit Card Debt Puzzle," 2007 Meeting Papers 515, Society for Economic Dynamics.
  2. Berentsen, Aleksander & Camera, Gabriele & Waller, Christopher, 2007. "Money, credit and banking," Journal of Economic Theory, Elsevier, vol. 135(1), pages 171-195, July.
  3. Chiu, Jonathan & Meh, Césaire A., 2011. "Financial Intermediation, Liquidity, And Inflation," Macroeconomic Dynamics, Cambridge University Press, vol. 15(S1), pages 83-118, April.
  4. Simonsen, Mario Henrique & Cysne, Rubens Penha, 2001. "Welfare Costs of Inflation and Interest-Bearing Money," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(1), pages 90-100, February.
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  8. Williamson, Stephen D, 1999. "Private Money," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 469-91, August.
  9. John V. Duca & William C. Whitesell, 1991. "Credit cards and money demand: a cross-sectional study," Research Paper 9112, Federal Reserve Bank of Dallas.
  10. Fernando Alvarez & Francesco Lippi, 2007. "Financial Innovation and the Transactions Demand for Cash," EIEF Working Papers Series 0807, Einaudi Institute for Economics and Finance (EIEF), revised Sep 2007.
  11. Mei Dong, 2011. "Money and Costly Credit," Working Papers 11-7, Bank of Canada.
  12. Attanasio, Orazio & Guiso, Luigi & Jappelli, Tullio, 1998. "The Demand for Money, Financial Innovation and the Welfare Cost of Inflation: An Analysis with Households' Data," CEPR Discussion Papers 1927, C.E.P.R. Discussion Papers.
  13. Humphrey, David B., 2004. "Replacement of cash by cards in US consumer payments," Journal of Economics and Business, Elsevier, vol. 56(3), pages 211-225.
  14. Shi, Shouyong, 1996. "Credit and Money in a Search Model with Divisible Commodities," Review of Economic Studies, Wiley Blackwell, vol. 63(4), pages 627-52, October.
  15. Miquel Faig & Belén Jerez, 2006. "Precautionary Balances and the Velocity of Circulation of Money," Working Papers tecipa-188, University of Toronto, Department of Economics.
  16. Irina A. Telyukova & Randall Wright, 2008. "A Model of Money and Credit, with Application to the Credit Card Debt Puzzle," Review of Economic Studies, Oxford University Press, vol. 75(2), pages 629-647.
  17. Reed, Robert R. & Waller, Christopher J., 2006. "Money and Risk Sharing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(6), pages 1599-1618, September.
  18. Ricardo de O. Cavalcanti & Neil Wallace, 1999. "A model of private bank-note issue," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 104-136, January.
  19. Stephen Williamson, 2004. "Limited participation, private money, and credit in a spatial model of money," Economic Theory, Springer, vol. 24(4), pages 857-875, November.
  20. Li, Yiting, 2006. "Banks, private money, and government regulation," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 2067-2083, November.
  21. Monnet, Cyril & Roberds, William, 2008. "Optimal pricing of payment services," Journal of Monetary Economics, Elsevier, vol. 55(8), pages 1428-1440, November.
  22. Lacker, Jeffrey M. & Schreft, Stacey L., 1996. "Money and credit as means of payment," Journal of Monetary Economics, Elsevier, vol. 38(1), pages 3-23, August.
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