EconPapers    
Economics at your fingertips  
 

Credit Market Frictions and Coessentiality of Money and Credit

Ohik Kwon () and Manjong Lee
Additional contact information
Ohik Kwon: Department of Economics, Korea University, Seoul, Republic of Korea

No 1602, Discussion Paper Series from Institute of Economic Research, Korea University

Abstract: We explore how credit market frictions matter for the coessentiality of money and credit. There are high-productivity and low-productivity borrowers. Limited commitment can yield a one-for-one credit limit in accordance with a borrower's productivity. An adverse selection problem caused by asymmetric information, however, makes lenders impose the credit limit of a low-productivity borrower on a high-productivity borrower. If productivities differ su fficiently between borrowers, a high-productivity borrower is credit-constrained and is willing to hold money to compensate for the deficiency of her credit limit, but a low-productivity borrower is not. This eventually implies the coessentiality of money and credit in the sense that the use of both improves the allocation from a social welfare perspective.

Keywords: asymmetric information; adverse selection; cash; coessentiality; credit (search for similar items in EconPapers)
JEL-codes: E41 E44 E50 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://econ.korea.ac.kr/~ri/WorkingPapers/w1602.pdf (application/pdf)

Related works:
Journal Article: Credit Market Frictions and Coessentiality of Money and Credit (2024) Downloads
Working Paper: Credit Market Frictions and Coessentiality of Money and Credit (2020) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iek:wpaper:1602

Access Statistics for this paper

More papers in Discussion Paper Series from Institute of Economic Research, Korea University Contact information at EDIRC.
Bibliographic data for series maintained by Kim, Jisoo ().

 
Page updated 2024-07-23
Handle: RePEc:iek:wpaper:1602