Why inside money matters

Sissoko, Carolyn

Abstract

This note observes that in a simple infinite horizon economy with heterogeneous endowments and a cash-in-advance constraint fiat money can be used to implement a Pareto optimum only with type-specific taxation. By contrast, if credit contracts are enforceable, the same allocation can be reached in equilibrium without type specific policy. We argue that the advantages of inside money and the fact that they depend on the capacity of the economy to enforce the repayment of debt direct us toward the study of the institutional infrastructure underlying self-enforcing inside money equilibria. © 2007 The Ohio State University.

• Journal Article Type: Article
• Acceptance Date: Sep 20, 2006
• Online Publication Date: Nov 20, 2007
• Publication Date: Dec 1, 2007
• Deposit Date: Oct 17, 2019
• Journal: Journal of Money, Credit and Banking
• Print ISSN: 0022-2879
• Electronic ISSN: 1538-4616
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 39
• Issue: 8
• Pages: 2097-2105
• DOI: https://doi.org/10.1111/j.1538-4616.2007.00100.x
• Keywords: fiat money, inside money, cash-in-advance, monetary theory
• Public URL: https://uwe-repository.worktribe.com/output/3845403
• Publisher URL: https://doi.org/10.1111/j.1538-4616.2007.00100.x