The payment mechanisms and liquidity effects

Yan Li () and Wayne Carroll

Journal of Macroeconomics, 2011, vol. 33, issue 4, 656-667

Abstract: A general equilibrium model with multiple means of payment in segmented markets is constructed to study the liquidity effects. It is shown that, under certain conditions, stored value – money issued by private entrepreneurs weakens, but does not completely eliminate the liquidity effects that exist when stored value is prohibited. The Friedman rule can be optimal in the regime with floating stored value. The impact of monetary policy now depends not only on the monetary intervention of the central bank, but also on the quantity of the outstanding private money and its velocity.

Keywords: Stored value; Private money; Payment mechanism; Liquidity effect; Segmented markets (search for similar items in EconPapers)
JEL-codes: E4 E5 (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:33:y:2011:i:4:p:656-667

DOI: 10.1016/j.jmacro.2011.09.002

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