Credit Cards and Inflation

John Geanakoplos () and Pradeep Dubey
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John Geanakoplos: Cowles Foundation, Yale University, http://cowles.econ.yale.edu/faculty/geanakoplos.htm
Pradeep Dubey: SUNY, Stonybrook

No 1709, Cowles Foundation Discussion Papers from Cowles Foundation, Yale University

Abstract: The introduction and widespread use of credit cards increases trading efficiency but, by also increasing the velocity of money, it causes inflation, in the absence of monetary intervention. If the monetary authority attempts to restore pre-credit card price levels by reducing the money supply, it might have to sacrifice the efficiency gains. When there is default on credit cards, there is even more inflation, and less efficiency gains. The monetary authority might then have to accept less than pre-credit card efficiency in order to restore pre-credit card price levels, or else it will have to accept inflation if it is unwilling to cut efficiency below pre-credit card levels. This could be a source of stagflation.

Keywords: Credit cards; Outside money; Inside money; Central bank; Inflation; Stagflation (search for similar items in EconPapers)
JEL-codes: D50 D51 D53 D61 E40 E50 E51 E52 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba and nep-mon
Date: 2009-06
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