Money and Credit Redux

Chao Gu, Fabrizio Mattesini and Randall Wright

No 1508, Working Papers from Department of Economics, University of Missouri

Abstract: We analyze money and credit as competing payment instruments in decentralized exchange. In natural environments, we show the economy does not need both: if credit is easy, money is irrelevant; if credit is tight, money can be essential, but then credit is irrelevant. Changes in credit conditions are neutral because real balances respond endogenously to keep total liquidity constant. This is true for exogenous or endogenous policy and debt limits, secured or unsecured lending, and a general class of pricing mechanisms. While we show how to overturn some results, the benchmark model suggests credit might matter less than people think.

Keywords: Money; Credit; Debt; Essentiality; Neutrality (search for similar items in EconPapers)
JEL-codes: E42 E51 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2015-03-29
New Economics Papers: this item is included in nep-ban, nep-dge, nep-mac and nep-mon
References: Add references at CitEc
Citations: View citations in EconPapers (13)

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Journal Article: Money and Credit Redux (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:umc:wpaper:1508

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