Monetary policy with asset-backed money

Andolfatto, David and Berentsen, Aleksander and Waller, Christopher. (2016) Monetary policy with asset-backed money. Journal of Economic Theory, 164. pp. 166-186.

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We study the use of asset-backed money in a neoclassical growth model with illiquid capital. A mechanism is delegated control of productive capital and issues claims against the revenue it earns. These claims constitute a form of asset-backed money. The mechanism determines (i) the number of claims outstanding, (ii) the dividends paid to claim holders, and (iii) the structure of redemption fees. We find that for capital-rich economies, the first-best allocation can be implemented and price stability is optimal. However, for sufficiently capital-poor economies, achieving the first-best allocation requires a strictly positive rate of inflation. In general, the minimum inflation necessary to implement the first-best allocation is decreasing in capital wealth.
Faculties and Departments:06 Faculty of Business and Economics > Departement Wirtschaftswissenschaften > Professuren Wirtschaftswissenschaften > Wirtschaftstheorie (Berentsen)
UniBasel Contributors:Berentsen, Aleksander
Item Type:Article, refereed
Article Subtype:Research Article
Note:Publication type according to Uni Basel Research Database: Journal article
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Last Modified:22 Nov 2018 14:57
Deposited On:05 May 2017 10:35

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