The Limits of onetary Economics: On Money as a Latent Medium of Exchange / Ricardo Lagos, Shengxing Zhang.

Format:

Book

Author/Creator:

Lagos, Ricardo.

Contributor:

National Bureau of Economic Research.

Zhang, Shengxing.

Series:

Working Paper Series (National Bureau of Economic Research) no. w26756.

NBER working paper series no. w26756

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2020.

Summary:

We formulate a generalization of the traditional medium-of-exchange function of money in contexts where there is imperfect competition in the intermediation of credit, settlement, or payment services used to conduct transactions. We find that the option to settle transactions with money strengthens the stance of sellers of goods and services vis-à-vis intermediaries, and show this mechanism is operative even for sellers who never exercise the option to sell for cash. These latent money demand considerations imply that in general, in contrast to current conventional wisdom in policy-oriented research in monetary economics, monetary policy remains effective through medium-of-exchange transmission channels--even in highly developed credit economies where the share of monetary transactions is negligible.

Notes:

Print version record

February 2020.