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Interest rates and prices in an inventory model of money with credit

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Abstract

Using a segmented market model that includes state-dependent asset market decisions along with access to credit, we analyze the impact that transactions credit has on interest rates and prices. We find that the availability of credit substantially changes the dynamics in the model, allowing agents to significantly smooth consumption and reduce the movements in velocity. As a result, prices become quite flexible and liquidity effects are dampened. Thus, adding another medium of exchange whose use is calibrated to U.S. data has important implications for economic behavior in a segmented markets model.

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  • Michael Dotsey & Pablo Guerrón-Quintana, 2012. "Interest rates and prices in an inventory model of money with credit," Working Papers 13-05, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:13-05
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    Cited by:

    1. Cociuba, Simona E. & Ramanarayanan, Ananth, 2019. "International risk sharing with endogenously segmented asset markets," Journal of International Economics, Elsevier, vol. 117(C), pages 61-78.
    2. Dotsey, Michael & Guerron-Quintana, Pablo A., 2016. "Interest rates and prices in an inventory model of money with credit," Journal of Monetary Economics, Elsevier, vol. 83(C), pages 71-89.
    3. Raj Kumar Bera & Shyamal Kumar Mondal, 2022. "A multi-objective transportation problem with cost dependent credit period policy under Gaussian fuzzy environment," Operational Research, Springer, vol. 22(4), pages 3147-3182, September.
    4. Hazra, Devika, 2018. "Distributional role of monetary policy under limited credit access," Research in Economics, Elsevier, vol. 72(4), pages 494-510.

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