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 | |
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