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WHY SHOULD MONEY LOSE VALUE WITH TIME: BOOSTING ECONOMY IN THE ERA OF E-MONEY

Roman Bozhya-Volya () and Alina Rybak ()
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Roman Bozhya-Volya: National Research University Higher School of Economics
Alina Rybak: National Research University Higher School of Economics

No WP BRP 207/EC/2019, HSE Working papers from National Research University Higher School of Economics

Abstract: We investigate new instrument of monetary policy which is able to stimulate economy in the age of electronic money. Demurrage (negative interest on money holdings) is a non inflationary monetary instrument that is able to boost the rate of economic transactions. We show with the search-theoretic model that the search effort of buyers is increasing in demurrage fees and higher search effort is associated with the lower price level and higher aggregate output. We find that aggregate welfare is higher when demurrage is imposed compared to quantitative easing policy. While demurrage is complicated to impose on banknotes it is easily set on electronic money which makes this unconventional policy measure more technologically feasible

Keywords: demurrage; negative interest on money; monetary policy; government policy in recession (search for similar items in EconPapers)
JEL-codes: E50 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac, nep-mon and nep-pay
Date: 2019
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Published in WP BRP Series: Economics / EC, January 2019, pages 1-19

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Persistent link: https://EconPapers.repec.org/RePEc:hig:wpaper:207/ec/2019

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