Interest rates and prices in an inventory model of money with credit

Michael Dotsey and Pablo Guerron

No 13-05, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: Using a segmented market model that includes state-dependent asset market decisions along with access to credit, we analyze the impact that transactions credit has on interest rates and prices. We find that the availability of credit substantially changes the dynamics in the model, allowing agents to significantly smooth consumption and reduce the movements in velocity. As a result, prices become quite flexible and liquidity effects are dampened. Thus, adding another medium of exchange whose use is calibrated to U.S. data has important implications for economic behavior in a segmented markets model.

Keywords: Credit; Money; Markets (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (1)

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Journal Article: Interest rates and prices in an inventory model of money with credit (2016)
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