TY - JOUR
T1 - Credit and Money in a Search Model with Divisible Commodities
AU - Shi, Shouyong
N1 - Funding Information:
Acknowledgements. Two referees and a managing editor (Tilman Borgers) have made suggestions that led to a major revision and new results. I also thank Randy Wright, Neil Wallace, Alberto Trejos, Nobu Kiyotaki, Scott Hendry, Merwan Engineer, Dan Bernhardt, Richard Amott and Rao Aiyagari for useful comments or discussions. Financial support from the Social Sciences and Humanities Research Council of Canada is gratefully acknowledged. All remaining errors are mine alone.
PY - 1996
Y1 - 1996
N2 - This paper examines the competition between money and credit in a search model with divisible commodities. It is shown that fiat money can be valuable even though it yields a lower rate of return than the coexisting credit. The competition between money and credit increases efficiency. The monetary equilibrium with credit Pareto dominates the monetary equilibrium without credit whenever the two coexist. When a credit is repaid with money, the competition also bounds the purchasing power of money from below by that of credit and so eliminates the weak inefficient monetary equilibrium found in previous search models. With numerical examples, three different monetary equilibria are ranked and the properties of the interest rate are examined.
AB - This paper examines the competition between money and credit in a search model with divisible commodities. It is shown that fiat money can be valuable even though it yields a lower rate of return than the coexisting credit. The competition between money and credit increases efficiency. The monetary equilibrium with credit Pareto dominates the monetary equilibrium without credit whenever the two coexist. When a credit is repaid with money, the competition also bounds the purchasing power of money from below by that of credit and so eliminates the weak inefficient monetary equilibrium found in previous search models. With numerical examples, three different monetary equilibria are ranked and the properties of the interest rate are examined.
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U2 - 10.2307/2297797
DO - 10.2307/2297797
M3 - Article
AN - SCOPUS:0005419636
SN - 0034-6527
VL - 63
SP - 627
EP - 652
JO - Review of Economic Studies
JF - Review of Economic Studies
IS - 4
ER -