Multiple means of payment, excess reserves, and monetary policy

Hyung Sun Choi, Manjong Lee

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)

Abstract

The effects of choosing between cash and credit as a means of payment on bank’s excess reserves are explored in the proposed model. The model incorporates the widespread recent features of payment patterns and financial services. Results suggest that credit increases excess reserves and generates leeway for banks to invest in interest-bearing assets. Given the growth rate of money, credit transactions increase, but welfare decreases. This phenomenon implies the optimality of the Friedman rule.

Original languageEnglish
Pages (from-to)5-21
Number of pages17
JournalKorean Economic Review
Volume32
Issue number1
Publication statusPublished - 2016 Jun 1

Bibliographical note

Funding Information:
The financial support from the National Research Foundation of Korea funded by the Korean Government (NRF-2014S1A3A2044238) is gratefully acknowledged. Tragically, we lost Professor Manjong Lee in May 2016 after the paper was completed. He and his devotions to economics will be greatly missed.

Publisher Copyright:
© 2016, Korean Economic Association. All rights reserved.

Keywords

  • Bank
  • Credit
  • Monetary policy
  • Money
  • Reserve

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

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