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 language | English |
|---|---|
| Pages (from-to) | 5-21 |
| Number of pages | 17 |
| Journal | Korean Economic Review |
| Volume | 32 |
| Issue number | 1 |
| Publication status | Published - 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)