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On The Welfare Effects Of Credit Arrangements

Author

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  • Jonathan Chiu
  • Mei Dong
  • Enchuan Shao

Abstract

This article studies the welfare effects of credit arrangements and how these effects depend on the trading mechanism and inflation. In a competitive market, credit arrangements can be welfare reducing, because high consumption by credit users drives up the price level, reducing consumption by money users who are subject to a binding liquidity constraint. By adopting an optimal trading mechanism, however, these welfare implications can be overturned. Both price discrimination and nonlinear pricing are essential features of an optimal mechanism.

Suggested Citation

  • Jonathan Chiu & Mei Dong & Enchuan Shao, 2018. "On The Welfare Effects Of Credit Arrangements," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 59(3), pages 1621-1651, August.
    • Handle: RePEc:wly:iecrev:v:59:y:2018:i:3:p:1621-1651
    DOI: 10.1111/iere.12315
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    References listed on IDEAS

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    2. Chiu, Jonathan & Meh, Césaire A., 2011. "Financial Intermediation, Liquidity, And Inflation," Macroeconomic Dynamics, Cambridge University Press, vol. 15(S1), pages 83-118, April.
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    Cited by:

    1. Berentsen, Aleksander & Huber, Samuel & Marchesiani, Alessandro, 2016. "The societal benefit of a financial transaction tax," European Economic Review, Elsevier, vol. 89(C), pages 303-323.
    2. Mohammed Ait Lahcen & Pedro Gomis‐Porqueras, 2021. "A Model of Endogenous Financial Inclusion: Implications for Inequality and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(5), pages 1175-1209, August.
    3. Davoodalhosseini, Seyed Mohammadreza, 2022. "Central bank digital currency and monetary policy," Journal of Economic Dynamics and Control, Elsevier, vol. 142(C).
    4. Geromichalos, Athanasios & Wang, Yijing, 2024. "Money and Competing Means of Payment," MPRA Paper 121388, University Library of Munich, Germany.
    5. Jonathan Chiu & Mohammad Davoodalhosseini, 2021. "Central Bank Digital Currency and Banking: Macroeconomic Benefits of a Cash-Like Design," Staff Working Papers 21-63, Bank of Canada.
    6. Stanislav PERCIC, 2018. "Credit expansion and social welfare in the European Union," CES Working Papers, Centre for European Studies, Alexandru Ioan Cuza University, vol. 10(4), pages 491-509, January.

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    More about this item

    JEL classification:

    • 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

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