Money and credit with limited commitment and theft

Daniel Sanches and Stephen Williamson

Journal of Economic Theory, 2010, vol. 145, issue 4, 1525-1549

Abstract: We study the interplay among imperfect memory, limited commitment, and theft, in an environment that can support monetary exchange and credit. Imperfect memory makes money useful, but it also permits theft to go undetected, and therefore provides lucrative opportunities for thieves. Limited commitment constrains credit arrangements, and the constraints tend to tighten with imperfect memory, as this mitigates punishment for bad behavior in the credit market. Theft matters for optimal monetary policy, but at the optimum theft will not be observed in the model. The Friedman rule is in general not optimal with theft, and the optimal money growth rate tends to rise as the cost of theft falls.

Keywords: Money; Credit; Imperfect; memory; Theft; Optimal; monetary; policy (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (82)

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Working Paper: Money and Credit With Limited Commitment and Theft (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:145:y:2010:i:4:p:1525-1549

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