Money and Debt in the Structure of Payments

Edward Green ()

Macroeconomics from EconWPA

Abstract: Freeman (1996) formulates a model in which payment arrangements based on intermediated debt that is settled using money can achieve higher welfare than direct money payment achieves. Freeman finds that a monetary authority can sometimes further improve welfare, and achieve efficiency, by participating in a secondary market for debt. The main result of this paper is that a private intermediary can also achieve efficiency by means of novation and substitution, a contractual device widely used by clearinghouses. The features of institutional governance required for either a central bank or a clearinghouse to achieve efficiency, particularly features related to ``central-bank independence,'' are discussed informally.

JEL-codes: E50 G20 (search for similar items in EconPapers)
Date: Written 1996-09-09
Note: 23 pages, LaTeX.
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