Multiple means of payment, excess reserves, and monetary policy

Hyung Sun Choi, Manjong Lee

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

The effects of choosing between cash and credit as a means of payment on bank’s excess reserves are explored in the proposed model. The model incorporates the widespread recent features of payment patterns and financial services. Results suggest that credit increases excess reserves and generates leeway for banks to invest in interest-bearing assets. Given the growth rate of money, credit transactions increase, but welfare decreases. This phenomenon implies the optimality of the Friedman rule.

Original languageEnglish
Pages (from-to)5-21
Number of pages17
JournalKorean Economic Review
Volume32
Issue number1
Publication statusPublished - 2016 Jun 1

Keywords

  • Bank
  • Credit
  • Monetary policy
  • Money
  • Reserve

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

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