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Money and Dynamic Credit Arrangements with Private Information

Listed author(s):
  • Aiyagari, S. Rao

    (University of Rochester)

  • Williamson, Stephen

    ()

    (University of Iowa)

We construct a model with private information in which consumers write dynamic contracts with financial intermediaries. A role for money arises due to random limited participation of consumers in the financial market. Without defection constraints, a Friedman rule is optimal, the mean and variability of wealth tend to fall in the steady state, and the welfare effects of inflation are very small. With defection constraints, it is optimal to eliminate currency entirely, the variability of wealth tends to rise with inflation, and the welfare effects of inflation are large.

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Paper provided by University of Iowa, Department of Economics in its series Working Papers with number 97-19.

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Length: 44 Pages
Date of creation: Oct 1997
Handle: RePEc:uia:iowaec:97-19
Contact details of provider: Postal:
University of Iowa, Department of Economics, Henry B. Tippie College of Business, Iowa City, Iowa 52242

Phone: (319) 335-0829
Fax: (319) 335-1956
Web page: http://tippie.uiowa.edu/economics/

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References listed on IDEAS
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  14. S. Rao Aiyagari & Stephen D. Williamson, 1997. "Credit in a Random Matching Model With Private Information," Game Theory and Information 9705005, EconWPA.
  15. Cheng Wang, 2010. "Dynamic Insurance with Private Information and Balanced Budgets," Levine's Working Paper Archive 2064, David K. Levine.
  16. Taub, Bart, 1994. "Currency and Credit Are Equivalent Mechanisms," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(4), pages 921-956, November.
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  26. Townsend, Robert M, 1989. "Currency and Credit in a Private Information Economy," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1323-1344, December.
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  28. Bewley, Truman, 1983. "A Difficulty with the Optimum Quantity of Money," Econometrica, Econometric Society, vol. 51(5), pages 1485-1504, September.
  29. Lucas, Robert E, Jr, 1992. "On Efficiency and Distribution," Economic Journal, Royal Economic Society, vol. 102(411), pages 233-247, March.
  30. Stockman, Alan C., 1981. "Anticipated inflation and the capital stock in a cash in-advance economy," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 387-393.
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