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Inside Outside Money Competition

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Abstract

We study how competition from privately supplied currency substitutes a¤ects monetary policy. We focus on regimes where monetary policy must be sequentially optimal. We obtain that the workings of competition between currency and currency substitutes depend critically on government objectives. However, the impact inside money competition has on equilibrium outcomes does not. In fact, we show that, in general, it enhances e¢ciency and reduces equilibrium in‡ation rates. Nevertheless, if the supply of “inside monies” is very e¢cient, then the equilibrium with currency may not be sustainable and only “inside money” will be held in equilibrium.

Suggested Citation

  • Juan Pablo Nicolini & Ramon Marimon & Pedro Teles, 2001. "Inside Outside Money Competition," Department of Economics Working Papers 004, Universidad Torcuato Di Tella.
  • Handle: RePEc:udt:wpecon:004
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    Cited by:

    1. Claudio Vitari, 2014. "Electronic currencies for purposive degrowth?," Working paper serie RMT - Grenoble Ecole de Management hal-00975432, HAL.
    2. Marimon, Ramon & Nicolini, Juan Pablo & Teles, Pedro, 2012. "Money is an experience good: Competition and trust in the private provision of money," Journal of Monetary Economics, Elsevier, vol. 59(8), pages 815-825.
    3. David C. Mills, Jr, 2008. "Imperfect Monitoring And The Discounting Of Inside Money," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(3), pages 737-754, August.
    4. Javier Diaz-Gimenez & Giorgia Giovannetti & Ramon Marimon & Pedro Teles, 2008. "Nominal Debt as a Burden on Monetary Policy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(3), pages 493-514, July.
    5. Claudio Vitari, 2014. "Electronic currencies for purposive degrowth?," Working Papers hal-00975432, HAL.

    More about this item

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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