Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Download
Standard view
Full view
of .
Look up keyword
Like this
1Activity
0 of .
Results for:
No results containing your search query
P. 1
Optimal Monetary Policy in a Model of Money and Credit

Optimal Monetary Policy in a Model of Money and Credit

Ratings: (0)|Views: 14|Likes:
The authors study optimal monetary policy in a model in which fiat money and private debt coexist as a means of payment. The credit system is endogenous and allows buyers to relax their cash constraints. However, it is costly for agents to publicly report their trades, which is necessary for the enforcement of private liabilities. If it is too costly for the government to obtain information regarding private transactions, then it relies on the public information generated by the private credit system. If not all private transactions are publicly reported, the government has imperfect public information to implement monetary policy. In this case, the authors show that there is no incentive-feasible policy that can implement the socially efficient allocation. Finally, they characterize the optimal policy for an economy with a low record-keeping cost and a large number of public transactions, which results in a positive long-run inflation rate.
The authors study optimal monetary policy in a model in which fiat money and private debt coexist as a means of payment. The credit system is endogenous and allows buyers to relax their cash constraints. However, it is costly for agents to publicly report their trades, which is necessary for the enforcement of private liabilities. If it is too costly for the government to obtain information regarding private transactions, then it relies on the public information generated by the private credit system. If not all private transactions are publicly reported, the government has imperfect public information to implement monetary policy. In this case, the authors show that there is no incentive-feasible policy that can implement the socially efficient allocation. Finally, they characterize the optimal policy for an economy with a low record-keeping cost and a large number of public transactions, which results in a positive long-run inflation rate.

More info:

Published by: Federal Reserve Bank of Philadelphia on Feb 02, 2011
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See more
See less

02/02/2011

pdf

text

original

 
 
WORKING PAPER NO. 11-4OPTIMAL MONETARY POLICY IN A MODEL OFMONEY AND CREDIT
Pedro Gomis-PorquerasAustralian National UniversityDaniel R. SanchesFederal Reserve Bank of PhiladelphiaDecember 2010
 
 Optimal Monetary Policy in a Model of Money and Credit
Pedro Gomis-PorquerasAustralian National UniversityDaniel R. SanchesFederal Reserve Bank of PhiladelphiaDecember 2010We would like to thank Steve Williamson, Rody Manuelli, Gaetano Antinolfi, Chris Waller,David Andolfatto, Albert Marcet, Yinting Li, the seminar participants at the St. Louis Fed, andthe participants of the SWIM 2009 and the 2010 Summer Workshop on Money, Banking,Payments, and Finance at the Chicago Fed.Correspondence to Sanches at Research Department, Federal Reserve Bank of Philadelphia, TenIndependence Mall, Philadelphia, PA 19106-1574; phone: (215) 574-4358; Fax: (215) 574-4303;e-mail:Daniel.Sanches@phil.frb.org.The views expressed in this paper are those of the author and do not necessarily reflect those of the Federal Reserve Bank of Philadelphia or the Federal Reserve System. This paper is availablefree of charge at www.philadelphiafed.org/research-and-data/publications/working-papers/ 
 
Abstract
We study optimal monetary policy in a model in which …at money and private debtcoexist as a means of payment. The credit system is endogenous and allows buyers torelax their cash constraints. However, it is costly for agents to publicly report theirtrades, which is necessary for the enforcement of private liabilities. If it is too costlyfor the government to obtain information regarding private transactions, then it relieson the public information generated by the private credit system. If not all privatetransactions are publicly reported, the government has imperfect public information toimplement monetary policy. In this case, we show that there is no incentive-feasiblepolicy that can implement the socially e¢cient allocation. Finally, we characterize theoptimal policy for an economy with a low record-keeping cost and a large number of public transactions, which results in a positive long-run in‡ation rate.
JEL classi…cation
: E4, E5.
Keywords
: Fiat money; private credit; costly record-keeping; imperfect public infor-mation; optimal monetary policy.
1

You're Reading a Free Preview

Download
scribd
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->