Inflation, credit, and indexed unit of account

Hyung Sun Choi, Ohik Kwon and Manjong Lee

International Review of Economics & Finance, 2016, vol. 41, issue C, 144-154

Abstract: A simple monetary model is constructed to study the implications of an indexed unit of account (Indexed-UoA). In an economy with an Indexed-UoA, the credit-trade friction attributed to inflation can be resolved and unexpected inflation causes no redistribution effect between debtors and creditors. However, in an economy without an Indexed-UoA, credit trades occur only if inflation is not too high and unexpected inflation renders debtors better off, but creditors worse off. In a high-inflation economy, money is used as a unit of account for spot trades only and an Indexed-UoA emerges as a unit of account for deferred-payment trades.

Keywords: Indexed unit of account; Deferred payment; Inflation; Welfare (search for similar items in EconPapers)
JEL-codes: E31 E42 E50 (search for similar items in EconPapers)
Date: 2016
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Working Paper: Inflation, Credit, and Indexed Unit of Account (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:41:y:2016:i:c:p:144-154

DOI: 10.1016/j.iref.2015.08.015

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