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Monetary policy with asset-backed money

Author

Listed:
  • David Andolfatto
  • Aleksander Berentsen
  • Christopher J. Waller

Abstract

We study the use of intermediated assets as media of exchange in a neo- classical growth model. An intermediary is delegated control over productive capital and finances itself by issuing claims against the revenue generated by its operations. Unlike physical capital, intermediated claims are assumed to be liquid-they constitute a form of asset-backed money. The intermediary is assumed to control 1) the number of claims outstanding, 2) the dividends paid out to claim holders and 3) the fee charged for collecting the dividend. We find that for patient economies, the first-best allocation can always be implemented as a competitive equilibrium through an appropriately designed intermediary policy rule. The optimal policy requires strictly positive inflation. While it is also possible to implement the first-best by introducing at money and a lump- sum tax instrument, our results demonstrate that neither of these interventions are necessary for efficiency.

Suggested Citation

  • David Andolfatto & Aleksander Berentsen & Christopher J. Waller, 2013. "Monetary policy with asset-backed money," Working Papers 2013-030, Federal Reserve Bank of St. Louis.
  • Handle: RePEc:fip:fedlwp:2013-030
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    References listed on IDEAS

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    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.
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    Cited by:

    1. Fernández-Villaverde, Jesús & Sanches, Daniel, 2016. "Can Currency Competition Work?," CEPR Discussion Papers 11095, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    Monetary policy ; Asset-backed financing;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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