Inflation, credit, and indexed unit of account

Hyung Sun Choi; Ohik Kwon; Manjong Lee

doi:10.1016/j.iref.2015.08.015

Inflation, credit, and indexed unit of account

Hyung Sun Choi, Ohik Kwon, Manjong Lee

Department of Economics

Research output: Contribution to journal › Article › peer-review

Abstract

A simple monetary model is constructed to study the implications of an indexed unit of account (Indexed-UoA). In an economy with an Indexed-UoA, the credit-trade friction attributed to inflation can be resolved and unexpected inflation causes no redistribution effect between debtors and creditors. However, in an economy without an Indexed-UoA, credit trades occur only if inflation is not too high and unexpected inflation renders debtors better off, but creditors worse off. In a high-inflation economy, money is used as a unit of account for spot trades only and an Indexed-UoA emerges as a unit of account for deferred-payment trades.

Original language	English
Pages (from-to)	144-154
Number of pages	11
Journal	International Review of Economics and Finance
Volume	41
DOIs	https://doi.org/10.1016/j.iref.2015.08.015
Publication status	Published - 2016 Jan 1

Keywords

Deferred payment
E31
E42
E50
Indexed unit of account
Inflation
Welfare

ASJC Scopus subject areas

Finance
Economics and Econometrics

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10.1016/j.iref.2015.08.015

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abstract = "A simple monetary model is constructed to study the implications of an indexed unit of account (Indexed-UoA). In an economy with an Indexed-UoA, the credit-trade friction attributed to inflation can be resolved and unexpected inflation causes no redistribution effect between debtors and creditors. However, in an economy without an Indexed-UoA, credit trades occur only if inflation is not too high and unexpected inflation renders debtors better off, but creditors worse off. In a high-inflation economy, money is used as a unit of account for spot trades only and an Indexed-UoA emerges as a unit of account for deferred-payment trades.",

keywords = "Deferred payment, E31, E42, E50, Indexed unit of account, Inflation, Welfare",

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AU - Choi, Hyung Sun

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N2 - A simple monetary model is constructed to study the implications of an indexed unit of account (Indexed-UoA). In an economy with an Indexed-UoA, the credit-trade friction attributed to inflation can be resolved and unexpected inflation causes no redistribution effect between debtors and creditors. However, in an economy without an Indexed-UoA, credit trades occur only if inflation is not too high and unexpected inflation renders debtors better off, but creditors worse off. In a high-inflation economy, money is used as a unit of account for spot trades only and an Indexed-UoA emerges as a unit of account for deferred-payment trades.

AB - A simple monetary model is constructed to study the implications of an indexed unit of account (Indexed-UoA). In an economy with an Indexed-UoA, the credit-trade friction attributed to inflation can be resolved and unexpected inflation causes no redistribution effect between debtors and creditors. However, in an economy without an Indexed-UoA, credit trades occur only if inflation is not too high and unexpected inflation renders debtors better off, but creditors worse off. In a high-inflation economy, money is used as a unit of account for spot trades only and an Indexed-UoA emerges as a unit of account for deferred-payment trades.

KW - Deferred payment

KW - E31

KW - E42

KW - E50

KW - Indexed unit of account

KW - Inflation

KW - Welfare

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JO - International Review of Economics and Finance

JF - International Review of Economics and Finance

ER -

Inflation, credit, and indexed unit of account

Abstract

Keywords

ASJC Scopus subject areas

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