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The payment mechanisms and liquidity effects

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  • Li, Yan
  • Carroll, Wayne

Abstract

A general equilibrium model with multiple means of payment in segmented markets is constructed to study the liquidity effects. It is shown that, under certain conditions, stored value – money issued by private entrepreneurs weakens, but does not completely eliminate the liquidity effects that exist when stored value is prohibited. The Friedman rule can be optimal in the regime with floating stored value. The impact of monetary policy now depends not only on the monetary intervention of the central bank, but also on the quantity of the outstanding private money and its velocity.

Suggested Citation

  • Li, Yan & Carroll, Wayne, 2011. "The payment mechanisms and liquidity effects," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 656-667.
    • Handle: RePEc:eee:jmacro:v:33:y:2011:i:4:p:656-667
    DOI: 10.1016/j.jmacro.2011.09.002
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    References listed on IDEAS

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    More about this item

    Keywords

    Stored value; Private money; Payment mechanism; Liquidity effect; Segmented markets;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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