Efficiency Of The Payments System, Velocity Of Circulation Of Money, And Financial Markets
The paper presents a general equilibrium monetary production model to illustrate the influence of unexpected changes in the efficiency of the payments system on the velocity of circulation of money and on the financial markets, in the presence of uncertainty. In this model, households face a cash-in-advance constraint and use a part of current income for present consumption. The results depend critically on the magnitude of the changes in the payment process relative to the monetary injections in the economy. If such changes are small, then the velocity of money is exogenously determined by the level of efficiency of the payments system. Moreover, the financial markets are affected by unexpected changes both in the money supply and in the velocity of money. In contrast, if the relative changes in the payment process are large, then the velocity of money is endogenously determined by households' decisions regarding cash-holding, lending, consumption, and labor. Moreover, it appears that the financial markets are affected only by changes in the rate of growth of money.
|Date of creation:||06 Jun 1997|
|Note:||Type of Document - WordPerfect; prepared on IBM PC ; to print on HP; pages: 33 ; figures: included. The opinions expressed in this paper are those of the author and do not necessarily represent the views of the Italian Ministry of the Treasury. I am indebted to Behzad Diba for encouragement and guidance during countless meetings, and to Matthew Canzoneri for suggestions and stimulating discussions. Thanks to Riccardo Fiorito, Pamela Labadie, and Chul Woo Park for comments, and to seminar participants at Georgetown University and at the Conference on "Payment Systems Research and Public Policy: Risk, Efficiency, and Innovation", sponsored by the Board of Governors of the Federal Reserve System and by the Journal of Money, Credit, and Banking, Washington D.C., 7-8 December 1995. All the remaining errors are mine.|
|Contact details of provider:|| Web page: http://econwpa.repec.org|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Canzoneri, Matthew B. & Dellas, Harris, 1998.
"Real interest rates and central bank operating procedures,"
Journal of Monetary Economics,
Elsevier, vol. 42(3), pages 471-494, October.
- Canzoneri, Matthew B & Dellas, Harris, 1995. "Real Interest Rates and Central Bank Operating Procedures," CEPR Discussion Papers 1099, C.E.P.R. Discussion Papers.
- Michael Woodford, 1990. "Does Competition Between Currencies Lead to Price Level and Exchange Rate Stability?," NBER Working Papers 3441, National Bureau of Economic Research, Inc.
- Lucas, Robert E, Jr & Stokey, Nancy L, 1987. "Money and Interest in a Cash-in-Advance Economy," Econometrica, Econometric Society, vol. 55(3), pages 491-513, May.
- Robert E. Lucas Jr. & Nancy L. Stokey, 1984. "Money and Interest in Cash-In-Advance Economy," Discussion Papers 628, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Robert E. Lucas, Jr. & Nancy L. Stokey, 1985. "Money and Interest in a Cash-in-Advance Economy," NBER Working Papers 1618, National Bureau of Economic Research, Inc.
- Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-1445, November.
- Svensson, Lars E O, 1985. "Money and Asset Prices in a Cash-in-Advance Economy," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 919-944, October. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpma:9706004. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA)
If references are entirely missing, you can add them using this form.