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Interest rates and prices in an inventory model of money with credit

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  • Dotsey, Michael
  • Guerron-Quintana, Pablo A.

Abstract

Using a segmented market model that includes state-dependent asset market decisions along with access to credit, we analyze the impact that transactions credit has on interest rates and prices. The availability of credit allows agents to significantly smooth consumption, reduce the movements in velocity, prices become quite flexible and liquidity effects are dampened. As credit costs decline in the model so does the effectiveness of monetary policy. We also investigate the recessionary consequences of a shock to the cost of credit, and find that the model׳s predictions align well with the empirical evidence.

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  • Dotsey, Michael & Guerron-Quintana, Pablo A., 2016. "Interest rates and prices in an inventory model of money with credit," Journal of Monetary Economics, Elsevier, vol. 83(C), pages 71-89.
    • Handle: RePEc:eee:moneco:v:83:y:2016:i:c:p:71-89
    DOI: 10.1016/j.jmoneco.2016.08.006
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    Cited by:

    1. Cociuba, Simona E. & Ramanarayanan, Ananth, 2019. "International risk sharing with endogenously segmented asset markets," Journal of International Economics, Elsevier, vol. 117(C), pages 61-78.
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    3. Raj Kumar Bera & Shyamal Kumar Mondal, 2022. "A multi-objective transportation problem with cost dependent credit period policy under Gaussian fuzzy environment," Operational Research, Springer, vol. 22(4), pages 3147-3182, September.
    4. Hazra, Devika, 2018. "Distributional role of monetary policy under limited credit access," Research in Economics, Elsevier, vol. 72(4), pages 494-510.

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