Optimal Monetary Policy in a Model of Money and Credit

Pedro Gomis‐porqueras and Daniel Sanches
Authors registered in the RePEc Author Service: Pedro Gomis-Porqueras

Journal of Money, Credit and Banking, 2013, vol. 45, issue 4, 701-730

Abstract: We investigate the extent to which monetary policy can enhance the functioning of the private credit system. Specifically, we characterize the optimal return on money in the presence of credit arrangements. There is a dual role for credit: it allows buyers to trade without fiat money and also permits them to borrow against future income. However, not all traders have access to credit. As a result, there is a social role for fiat money because it allows agents to self‐insure against the risk of not being able to use credit in some transactions. We consider a (nonlinear) monetary mechanism that is designed to enhance the credit system. An active monetary policy is sufficient for relaxing credit constraints. Finally, we characterize the optimal monetary policy and show that it necessarily entails a positive inflation rate.

Date: 2013
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Citations: View citations in EconPapers (8)

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https://doi.org/10.1111/jmcb.12021

Related works:
Journal Article: Optimal Monetary Policy in a Model of Money and Credit (2013)
Working Paper: Optimal monetary policy in a model of money and credit (2011)
Working Paper: Optimal monetary policy in a model of money and credit (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:45:y:2013:i:4:p:701-730

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