Andolfatto, David (2008): Essential Interest-Bearing Money (2008).
Download (187Kb) | Preview
I consider a model of intertemporal trade where agents lack commitment, agent types are private information, there is an absence of recordkeeping, and societal penalties are infeasible. Despite these frictions, I demonstrate that policy can be designed to implement the first-best allocation as a (stationary) competitive monetary equilibrium. The optimal policy requires a strictly positive interest rate with the aggregate interest expenditure financed in part by an inflation tax and in part by an incentive-compatible lump-sum fee. An illiquid bond is essential only in the event that paying interest on money is prohibitively costly.
|Item Type:||MPRA Paper|
|Original Title:||Essential Interest-Bearing Money (2008)|
|Subjects:||E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates|
|Depositing User:||David Andolfatto|
|Date Deposited:||03. May 2008 18:24|
|Last Modified:||16. Feb 2013 11:23|
1.Andolfatto, David (2008). "The Simple Analytics of Money and Credit in a Quasi-linear Environment," Working Paper.
2.Berentsen, Aleks, Camera, Gabriele, and Chris Waller (2007). "Money, Credit, and Banking," Journal of Economic Theory, 135: 171--195.
3.Kocherlakota, Narayana (1998). "Money is Memory," Journal of Economic Theory, 81: 232--251.
4.Kocherlakota, Narayana (2003). "Societal Benefits of Illiquid Bonds," Journal of Economic Theory, 108: 179--193.
5.Lagos, Ricardo and Randall Wright (2005) "A Unified Framework for Monetary Theory and Policy Analysis," Journal of Political Economy, 113: 463--484.
6.Levine, David (1991). "Asset Trading Mechanisms and Expansionary Monetary Policy," Journal of Economic Theory, 54: 495--522.
7.Shi, Shouyong (2006). "Welfare Improvement from Restricting the Liquidity of Nominal Bonds," Working Paper.