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Money, credit, risk of loss, and limited participation

Hyung Sun Choi ()

International Review of Economics & Finance, 2014, vol. 34, issue C, 9-23

Abstract: An asset market segmentation model is constructed to explore the distributional effects of monetary policy on theft and the choice of costly credit and money. Money is risky to hold due to theft. Traders who participate in the asset market can have a liquidity insurance against inflation while nontraders cannot. In equilibrium, money is nonneutral. An anticipated money injection always decreases theft and improves welfare of all. However, an unanticipated money injection decreases theft for traders but increases it for nontraders. If the policy effects on nontraders dominate, then there are welfare costs of inflation and the optimal money growth rate is negative.

Keywords: Money; Credit; Theft; Market segmentation; Monetary policy (search for similar items in EconPapers)
JEL-codes: E4 E5 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1016/j.iref.2014.06.006

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