Money and Dynamic Credit Arrangements with Private Information

S. Rao Aiyagari and Stephen Williamson ()

Working Papers from University of Iowa, Department of Economics

Abstract: We construct a model with private information in which consumers write dynamic contracts with financial intermediaries. A role for money arises due to random limited participation of consumers in the financial market. Without defection constraints, a Friedman rule is optimal, the mean and variability of wealth tend to fall in the steady state, and the welfare effects of inflation are very small. With defection constraints, it is optimal to eliminate currency entirely, the variability of wealth tends to rise with inflation, and the welfare effects of inflation are large.

Keywords: Money; Credit; Private Information (search for similar items in EconPapers)
JEL-codes: D8 E5 (search for similar items in EconPapers)
Date: 1997-10

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Related works:
Working Paper: Money and dynamic credit arrangements with private information (1998)
Working Paper: Money and Dynamic Credit Arrangements with Private Information (1998)
Journal Article: Money and Dynamic Credit Arrangements with Private Information (2000)
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Persistent link: http://EconPapers.repec.org/RePEc:uia:iowaec:97-19

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