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Money and Credit Redux

Author

Listed:
  • Chao Gu

    (University of Missouri-Columbia)

  • Fabrizio Mattesini
  • Randall Wright

Abstract

We analyze money and credit as competing payment instruments in decentralized exchange. In natural environments, we show the economy does not need both: if credit is easy, money is irrelevant; if credit is tight, money can be essential, but then credit is irrelevant. Changes in credit conditions are neutral because real balances respond endogenously to keep total liquidity constant. This is true for exogenous or endogenous policy and debt limits, secured or unsecured lending, and a general class of pricing mechanisms. While we show how to overturn some results, the benchmark model suggests credit might matter less than people think.

Suggested Citation

  • Chao Gu & Fabrizio Mattesini & Randall Wright, 2015. "Money and Credit Redux," Working Papers 1508, Department of Economics, University of Missouri.
    • Handle: RePEc:umc:wpaper:1508
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    More about this item

    Keywords

    Money; Credit; Debt; Essentiality; Neutrality;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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