Monetary policy with asset-backed money

David Andolfatto (), Aleksander Berentsen and Christopher Waller

No 198, ECON - Working Papers from Department of Economics - University of Zurich

Abstract: We study the use of asset-backed money in a neoclassical growth model with illiquid capital. A mechanism is delegated control of productive capi- tal and issues claims against the revenue it earns. These claims constitute a form of asset-backed money. The mechanism determines (i) the number of claims outstanding, (ii) the dividends paid to claim holders, and (iii) the structure of redemption fees. We find that for capital-rich economies, the first-best allocation can be implemented and price stability is optimal. However, for sufficiently capital-poor economies, achieving the first-best allocation requires a strictly positive rate of inflation. In general, the minimum infiation necessary to implement the first-best allocation is above the Friedman rule and varies with capital wealth.

Keywords: Limited commitment; asset-backed money; optimal monetary policy (search for similar items in EconPapers)
JEL-codes: D82 D83 E61 G32 (search for similar items in EconPapers)
Date: 2015-06
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
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Related works:
Journal Article: Monetary policy with asset-backed money (2016)
Working Paper: Monetary policy with asset-backed money (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:zur:econwp:198

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