Money and credit as means of payment

A stochastic economic environment is presented in which the mix of cash and resource-costly credit used as means of payment is endogenous. For reasonable values of the credit cost parameter, velocity can be quite variable and sensitive to the nominal interest rate. Those parameter values also genera...

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Bibliographic Details
Published in:Journal of monetary economics 1996-08, Vol.38 (1), p.3-23
Main Authors: Lacker, Jeffrey M., Schreft, Stacey L.
Format: Article
Language:English
Subjects:
Credit
Economic theory
Inflation
Interest rates
Monetary economics
Monetary policy
Money
Stochastic models
Studies
Velocity
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Summary:A stochastic economic environment is presented in which the mix of cash and resource-costly credit used as means of payment is endogenous. For reasonable values of the credit cost parameter, velocity can be quite variable and sensitive to the nominal interest rate. Those parameter values also generate larger welfare costs of inflation than have been found previously and a sizable impact of inflation on real interest rates.
ISSN:0304-3932
1873-1295
DOI:10.1016/0304-3932(96)01268-8