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Credit Cards and Inflation

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Author Info
John Geanakoplos () (Cowles Foundation, Yale University)
Pradeep Dubey (SUNY, Stonybrook)
Abstract

The introduction and widespread use of credit cards increases trading efficiency but, by also increasing the velocity of money, it causes inflation, in the absence of monetary intervention. If the monetary authority attempts to restore pre-credit card price levels by reducing the money supply, it might have to sacrifice the efficiency gains. When there is default on credit cards, there is even more inflation, and less efficiency gains. The monetary authority might then have to accept less than pre-credit card efficiency in order to restore pre-credit card price levels, or else it will have to accept inflation if it is unwilling to cut efficiency below pre-credit card levels. This could be a source of stagflation.

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File URL: http://cowles.econ.yale.edu/P/cd/d17a/d1709.pdf
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Publisher Info
Paper provided by Cowles Foundation, Yale University in its series Cowles Foundation Discussion Papers with number 1709.

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Length: 50 pages
Date of creation: Jun 2009
Date of revision:
Handle: RePEc:cwl:cwldpp:1709

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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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Related research
Keywords: Credit cards; Outside money; Inside money; Central bank; Inflation; Stagflation;

Find related papers by JEL classification:
D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Lucas, Robert E, Jr & Stokey, Nancy L, 1987. "Money and Interest in a Cash-in-Advance Economy," Econometrica, Econometric Society, vol. 55(3), pages 491-513, May. [Downloadable!] (restricted)
    Other versions:
  2. James Tobin, 1963. "Commercial Banks as Creators of 'Money'," Cowles Foundation Discussion Papers 159, Cowles Foundation, Yale University. [Downloadable!]
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This page was last updated on 2009-11-12.

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