Essential Interest-Bearing Money

David Andolfatto ()

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper, I provide a rationale for why money should earn interest; or, what amounts to the same thing, why risk-free claims to non-interest-bearing money should trade at discount. I argue that interest-bearing money is essential when individual money balances are private information. The analysis also suggests one reason for why it is sufficient (as well as necessary) for interest to be paid only on large money balances; or equivalently, why bonds need only be issued in large denominations.

Keywords: Money; Bonds; Monetary Policy; Friedman Rule (search for similar items in EconPapers)
JEL-codes: E4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
Date: Written
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http://mpra.ub.uni-muenchen.de/4780/

Related works:
Working Paper: Essential Interest-Bearing Money (2007)
Working Paper: Essential interest-bearing money (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:pra:mprapa:4780

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