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

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

Bibliographical note

Funding Information:
We would like to thank the editor and the anonymous referee for their helpful comments and suggestions. Manjong Lee gratefully acknowledges the financial support from the National Research Foundation of Korea grant funded by the Korean Government ( NRF-2014S1A3A2044238 ).

Publisher Copyright:
© 2015 Elsevier Inc.

Keywords

Deferred payment
E31
E42
E50
Indexed unit of account
Inflation
Welfare

ASJC Scopus subject areas

Finance
Economics and Econometrics

Access to Document

10.1016/j.iref.2015.08.015

Cite this

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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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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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ER -

Inflation, credit, and indexed unit of account

Abstract

Bibliographical note

Keywords

ASJC Scopus subject areas

Access to Document

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