Andolfatto, David (2007): Essential Interest-Bearing Money.
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In this paper, I provide a rationale for why money should earn interest; or, what amounts to the same thing, why risk-free claims to non-interest-bearing money should trade at discount. I argue that interest-bearing money is essential when individual money balances are private information. The analysis also suggests one reason for why it is sufficient (as well as necessary) for interest to be paid only on large money balances; or equivalently, why bonds need only be issued in large denominations.
|Item Type:||MPRA Paper|
|Institution:||Simon Fraser University|
|Original Title:||Essential Interest-Bearing Money|
|Keywords:||Money; Bonds; Monetary Policy; Friedman Rule|
|Subjects:||E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates|
|Depositing User:||David Andolfatto|
|Date Deposited:||08. Sep 2007|
|Last Modified:||16. Feb 2013 11:23|