Imperfect monitoring and the discounting of inside money

• 成果类型: Article
• 署名作者: Mills, David C., Jr.
• 署名单位: Federal Reserve System - USA; Federal Reserve System Board of Governors
• 刊物名称: INTERNATIONAL ECONOMIC REVIEW
• ISSN/ISSBN: 0020-6598
• 发表日期: 2008
• 页码: 737-754
• 关键词: private; search; MODEL

摘要

This article evaluates the efficiency of a requirement that private issuers redeem inside money on demand at par in a random-matching model of money where the issuers of inside money are imperfectly monitored. I find that for sufficiently imperfect monitoring, a par redemption requirement leads to lower social welfare than if private money were redeemed at a discount. A central message of the article is that if inside money and outside money are not perfect. substitutes, a par redemption requirement may not be socially optimal because such a requirement effectively binds them to circulate as if they are.