Monetary policy with asset-backed money

David Andolfatto (), Aleksander Berentsen and Christopher Waller

Journal of Economic Theory, 2016, vol. 164, issue C, 166-186

Abstract: We study the use of asset-backed money in a neoclassical growth model with illiquid capital. A mechanism is delegated control of productive capital and issues claims against the revenue it earns. These claims constitute a form of asset-backed money. The mechanism determines (i) the number of claims outstanding, (ii) the dividends paid to claim holders, and (iii) the structure of redemption fees. We find that for capital-rich economies, the first-best allocation can be implemented and price stability is optimal. However, for sufficiently capital-poor economies, achieving the first-best allocation requires a strictly positive rate of inflation. In general, the minimum inflation necessary to implement the first-best allocation is decreasing in capital wealth.

Keywords: Limited commitment; Asset-backed money; Optimal monetary policy (search for similar items in EconPapers)
JEL-codes: D82 D83 E61 G32 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Working Paper: Monetary policy with asset-backed money (2015)
Working Paper: Monetary policy with asset-backed money (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:164:y:2016:i:c:p:166-186

DOI: 10.1016/j.jet.2015.08.006

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