Electronic Money: Sustaining Low Inflation
We analyze the impact of electronic money competition on policy outcomes. We consider di®erent assumptions regarding the objectives of the central bank and its ability to commit to future policies. Electronic money competition can discipline a revenue maximizing government and result in lower equilibrium in°ation rates, even when there is imperfect commitment. The e±cient Friedman rule is only implemented if the government maximizes welfare. However electronic money competition may result in the Friedman rule being non credible. We also show how an indepen- dent choice of the reserve requirements can be an e®ective policy rule to enhance the disciplinary role of electronic money compe- tition.
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|Date of creation:||1998|
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