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.
|Number of pages||17|
|Journal||Korean Economic Review|
|Publication status||Published - 2016 Jun 1|
- Monetary policy
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)