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Money and Credit With Limited Commitment and Theft

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  • Williamson, Stephen
  • Sanches, Daniel

Abstract

We study the interplay among imperfect memory, limited commitment, and theft, in an environment that can support monetary exchange and credit. Imperfect memory makes money useful, but it also permits theft to go undetected, and therefore provides lucrative opportunities for thieves. Limited commitment constrains credit arrangements, and the constraints tend to tighten with imperfect memory, as this mitigates punishment for bad behavior in the credit market. Theft matters for optimal monetary policy, but at the optimum theft will not be observed in the model. The Friedman rule is in general not optimal with theft, and the optimal money growth rate tends to rise as the cost of theft falls.

Suggested Citation

  • Williamson, Stephen & Sanches, Daniel, 2009. "Money and Credit With Limited Commitment and Theft," MPRA Paper 20690, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:20690
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    References listed on IDEAS

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    1. Deviatov, Alexei & Wallace, Neil, 2009. "A model in which monetary policy is about money," Journal of Monetary Economics, Elsevier, vol. 56(3), pages 283-288, April.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Money; Credit; Limited Commitment; Monetary Policy;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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