The Societal Benefits of Money and Interest Bearing Debt
Luis Araujo () and
Leo Ferraris ()
Additional contact information
Leo Ferraris: DEF & CEIS,University of Rome "Tor Vergata", http://www.ceistorvergata.it
No 453, CEIS Research Paper from Tor Vergata University, CEIS
Abstract:
A long standing issue in monetary theory is whether money and interest bearing debt may both play a beneficial role in facilitating transactions. This paper identifies in the misallocation of liquidity a key element to provide an answer. In a search model of money, we show that there exists an equilibrium which resembles a liquidity trap, in which debt and money are used interchangeably to trade goods and debt carries no interest, and a Pareto superior equilibrium in which money is used to trade goods and interest bearing debt to reshuffle misallocated liquidity. Monetary policy has no effect in the liquidity trap, and a liquidity e¤ect in the Pareto superior equilibrium.
Keywords: Money; Debt; Bonds; Monetary Policy (search for similar items in EconPapers)
JEL-codes: E40 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2019-02-19, Revised 2019-02-19
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:
Downloads: (external link)
https://ceistorvergata.it/RePEc/rpaper/RP453.pdf Main text (application/pdf)
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:rtv:ceisrp:453
Ordering information: This working paper can be ordered from
CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
https://ceistorvergata.it
Access Statistics for this paper
More papers in CEIS Research Paper from Tor Vergata University, CEIS CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma. Contact information at EDIRC.
Bibliographic data for series maintained by Barbara Piazzi ().