Inflation, Credit, and Indexed Unit of Account

Hyung Sun Choi, Ohik Kwon () and Manjong Lee
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Ohik Kwon: Department of Economics, Korea University, Seoul, Republic of Korea

No 1307, Discussion Paper Series from Institute of Economic Research, Korea University

Abstract: A simple monetary model is constructed to study the implications of an indexed unit of account (Indexed-UoA). In an economy with an Indexed-UoA, credit trade friction attributed to inflation is resolved and there is no redistributional effect from unexpected inflation between debtors and creditors. However, in an economy without an Indexed-UoA, credit trades occur only if inflation is not too high and unexpected inflation renders debtors better off but creditors worse off. Adopting a medium of exchange as a unit of account is most apposite for a low-inflation economy, whereas introducing an alternative Indexed-UoA enhances welfare in an economy where inflation undermines credit trades.

Keywords: indexed unit of account; deferred payment; inflation; welfare (search for similar items in EconPapers)
JEL-codes: E31 E42 E50 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Journal Article: Inflation, credit, and indexed unit of account (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:iek:wpaper:1307

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