Money, trade credit, and asset prices Public Deposited

Creator Series Date Created
  • 1991-02
Abstract
  • We describe a stochastic economic environment in which the mix of money and trade credit used as means of payment is endogenous. The economy has an infinite horizon, spatial separation and a credit-related transaction cost, but no capital. We find that the equilibrium prices of arbitrary contingent claims to future currency differ from those from one-good cash-in-advance models. This anomaly is directly related to the endogeneity of the mix of media of exchange used. In particular, nominal interest rates affect the risk-free real rate of return. The model also has implications for some long-standing issues in monetary policy and for time series analysis using money and trade credit.

Subject (JEL) Date Modified
  • 08/21/2018
Corporate Author
  • Federal Reserve Bank of Minneapolis. Research Department.
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