Inflation, credit, and indexed unit of account

Hyung Sun Choi, Ohik Kwon, Manjong Lee

Research output: Contribution to journalArticlepeer-review

Abstract

A simple monetary model is constructed to study the implications of an indexed unit of account (Indexed-UoA). In an economy with an Indexed-UoA, the credit-trade friction attributed to inflation can be resolved and unexpected inflation causes no redistribution effect between debtors and creditors. However, in an economy without an Indexed-UoA, credit trades occur only if inflation is not too high and unexpected inflation renders debtors better off, but creditors worse off. In a high-inflation economy, money is used as a unit of account for spot trades only and an Indexed-UoA emerges as a unit of account for deferred-payment trades.

Original languageEnglish
Pages (from-to)144-154
Number of pages11
JournalInternational Review of Economics and Finance
Volume41
DOIs
Publication statusPublished - 2016 Jan 1

Keywords

  • Deferred payment
  • E31
  • E42
  • E50
  • Indexed unit of account
  • Inflation
  • Welfare

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance

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