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Money and Debt in the Structure of Payments

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  • Edward J. Green

    (Federal Reserve Bank of Minneapolis)

Abstract

Freeman (1996) formulates a model in which payment arrangements based on intermediated debt that is settled using money can achieve higher welfare than direct money payment achieves. Freeman finds that a monetary authority can sometimes further improve welfare, and achieve efficiency, by participating in a secondary market for debt. The main result of this paper is that a private intermediary can also achieve efficiency by means of novation and substitution, a contractual device widely used by clearinghouses. The features of institutional governance required for either a central bank or a clearinghouse to achieve efficiency, particularly features related to ``central-bank independence,'' are discussed informally.

Suggested Citation

  • Edward J. Green, 1996. "Money and Debt in the Structure of Payments," Macroeconomics 9609002, University Library of Munich, Germany, revised 09 Sep 1996.
  • Handle: RePEc:wpa:wuwpma:9609002
    Note: 23 pages, LaTeX.
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    References listed on IDEAS

    as
    1. Freeman, Scott, 1996. "The Payments System, Liquidity, and Rediscounting," American Economic Review, American Economic Association, vol. 86(5), pages 1126-1138, December.
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    More about this item

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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