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The Joint Services of Money and Credit

William Barnett () and Liting Su
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Liting Su: Department of Economics, The University of Kansas

No 201407, WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS from University of Kansas, Department of Economics

Abstract: While credit cards provide transaction services, as do currency and demand deposits, credit cards have never been included in measures of the money supply. The reason is accounting conventions, which do not permit adding liabilities, such as credit card balances, to assets, such as money. But economic aggregation theory and index number theory are based on microeconomic theory, not accounting, and measure service flows. We derive theory needed to measure the joint services of credit cards and money. The underlying assumption is that credit card services are not weakly separable from the services of monetary assets. Carried forward rotating balances are not included, since they were used for transactions services in prior periods. The theory is developed for the representative consumer, who pays interest for the services of credit cards during the period used for transactions. In the transmission mechanism of central bank policy, our results raise potentially fundamental questions about the traditional dichotomy between money and some forms of short term credit, such as checkable lines of credit. We do not explore those deeper issues in this paper, which focuses on measurement..

Keywords: credit cards; money; credit; aggregation theory; index number theory; Divisia index; risk; asset pricing. (search for similar items in EconPapers)
JEL-codes: C43 E01 E3 E40 E41 E51 E52 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-mac and nep-mon
Date: 2014-12, Revised 2014-12
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