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A Model in Which Outside and Inside Money Are Essential

David C. Mills, Jr.
Format
Book; Government Document; Online; EBook
Published
Washington, D.C. : Federal Reserve Board, [2006]
Language
English
Series
Finance and Economics Discussion Series
Abstract
"I present an environment for which both outside and inside money are essential as means of payment. The key model feature is that there is imperfect monitoring of issuers of inside money. I use a random matching model of money where some agents have private trading histories and others have trading histories that can be publicly observed only after a lag. I show via an example that for lags that are neither too long nor too short, there exist allocations that use both types of money that cannot be duplicated when only one type is used. Inside money provides liquidity that increases the frequency of trades, but incentive constraints restrict the amount of output that can be traded. Outside money is immune to such constraints and can trade for higher levels of output."
Description
42 p. : ill. ; 28 cm.
Mode of access: Internet.
Notes
Includes bibliographical references.
Series Statement
Finance and economics discussion series ; 2006-38
Copyright Not EvaluatedCopyright Not Evaluated
Technical Details
  • Staff View

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    a| 42 p. : b| ill. ; c| 28 cm.
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    a| "I present an environment for which both outside and inside money are essential as means of payment. The key model feature is that there is imperfect monitoring of issuers of inside money. I use a random matching model of money where some agents have private trading histories and others have trading histories that can be publicly observed only after a lag. I show via an example that for lags that are neither too long nor too short, there exist allocations that use both types of money that cannot be duplicated when only one type is used. Inside money provides liquidity that increases the frequency of trades, but incentive constraints restrict the amount of output that can be traded. Outside money is immune to such constraints and can trade for higher levels of output."
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    a| Mode of access: Internet.
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    a| Inside and outside money
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