On the welfare effects of credit arrangements

Arbeitspapier

This paper studies the welfare effects of different credit arrangements and how these effects depend on the trading mechanism and inflation. In a competitive market, a deviation from the Friedman rule is always sub-optimal. Moreover, credit arrangements can be welfare-reducing, because increased consumption by credit users will drive up the price level so that money users have to reduce consumption when facing a binding liquidity restraint. By adopting an optimal trading mechanism, however, these welfare implications can be overturned. Price discrimination under the optimal mechanism helps internalize the price effects. First, small deviations from the Friedman rule are no longer welfare-reducing. Second, increasing the access to credit becomes welfare-improving. Finally, the model is extended to study the welfare effects of credit systems when credit serves as means of payment, and endogenous credit constraint.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bank of Canada Working Paper ; No. 2012-43

Classification and Topics

• Classification: Wirtschaft ; Money and Interest Rates: General ; Monetary Policy, Central Banking, and the Supply of Money and Credit: General
• Subject: Credit and credit aggregates ; Payment, clearing, and settlement systems

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Chiu, Jonathan ; Dong, Mei ; Shao, Enchuan
• Event: Veröffentlichung
• (who): Bank of Canada
• (where): Ottawa
• (when): 2012

Further information

• DOI: doi:10.34989/swp-2012-43
• Handle: http://hdl.handle.net/10419/80795
• Last update: 10.03.2025, 11:42 AM CET