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Notes on an Environment with Debt-Settlement Intermediation


  • Edward J. Green

    (Federal Reserve Bank of Minneapolis)


These notes concern a model of an economy where the following four things happen in an equilibrium. + Fiat money is useful as a medium of exchange. Consequently it has value. + Some trades are also financed by the issuance of private IOUs, and money must be used to pay these off. + Besides there being transactions in which money is exchanged for a good, there are also transactions in which money is exchanged for an IOU that has not yet matured. That is, the IOUs are a form of circulating debt--- a privately issued analogue of government bonds. + Relative to maintaining a fixed supply of fiat currency, efficiency can be increased by having a monetary authority that engages in some pattern of transactions that causes the quantity of fiat money to fluctuate.

Suggested Citation

  • Edward J. Green, 1996. "Notes on an Environment with Debt-Settlement Intermediation," Meeting papers 9606001, EconWPA.
  • Handle: RePEc:wpa:wuwpme:9606001
    Note: LaTeX file. This paper will be presented at the Tokyo Center for Economic Research conference in June, 1996

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    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling


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