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MONEY, CREDIT, AND LIMITED PARTICIPATION

Published online by Cambridge University Press:  24 June 2011

Hyung Sun Choi
Hyung Sun Choi*
Affiliation:
Kyung Hee University
*
Corresponding author: Hyung Sun Choi, Department of Economics, College of Politics and Economics, Kyung Hee University, 1 Hoegi-dong, Dongdaemun-gu, Seoul, 130-701, South Korea; e-mail: hyungsunchoi@gmail.com.
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Abstract

An asset market segmentation model is constructed to study the distributional effects of monetary policy when economic individuals can choose means of payment among alternatives. In equilibrium, monetary policy has two distributional effects: a direct effect and an indirect effect through the choice of means of payment. When the government injects money, some purchase a greater variety of goods with cash whereas others purchase a greater variety of goods with credit. Credit can dampen fluctuations in consumption arising from monetary policy. The optimal money growth rate can be positive or negative. The Friedman rule is not optimal in general.

Keywords

MoneyCreditLimited ParticipationNonneutrality of MoneyDistributional Effects

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Type
Articles
Information
Macroeconomic Dynamics , Volume 15 , Issue 5 , November 2011 , pp. 616 - 655
Copyright
Copyright © Cambridge University Press 2011

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