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The Joint Services of Money and Credit

Author

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  • William Barnett

    (Department of Economics, The University of Kansas; Center for Financial Stability, New York City; IC2 Institute, University of Texas at Austin)

  • Liting Su

    (Department of Economics, The University of Kansas)

Abstract

While credit cards provide transaction services, as do currency and demand deposits, credit cards have never been included in measures of the money supply. The reason is accounting conventions, which do not permit adding liabilities, such as credit card balances, to assets, such as money. But economic aggregation theory and index number theory are based on microeconomic theory, not accounting, and measure service flows. We derive theory needed to measure the joint services of credit cards and money. The underlying assumption is that credit card services are not weakly separable from the services of monetary assets. Carried forward rotating balances are not included, since they were used for transactions services in prior periods. The theory is developed for the representative consumer, who pays interest for the services of credit cards during the period used for transactions. In the transmission mechanism of central bank policy, our results raise potentially fundamental questions about the traditional dichotomy between money and some forms of short term credit, such as checkable lines of credit. We do not explore those deeper issues in this paper, which focuses on measurement..

Suggested Citation

  • William Barnett & Liting Su, 2014. "The Joint Services of Money and Credit," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201407, University of Kansas, Department of Economics, revised Dec 2014.
  • Handle: RePEc:kan:wpaper:201407
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    More about this item

    Keywords

    credit cards; money; credit; aggregation theory; index number theory; Divisia index; risk; asset pricing.;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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