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The limits of onetary economics: on money as a constraint on market power

Lagos, Ricardo and Zhang, Shengxing ORCID: 0000-0002-1475-2188 (2022) The limits of onetary economics: on money as a constraint on market power. Econometrica, 90 (3). pp. 1177-1204. ISSN 0012-9682

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Identification Number: 10.3982/ECTA17319

Abstract

We formulate a generalization of the traditional medium-of-exchange function of money in contexts where there is imperfect competition in the intermediation of credit, settlement, or payment services used to conduct transactions. We find that the option to settle transactions with money strengthens the stance of sellers of goods and services in relation to intermediaries, and show this mechanism is operative even for sellers who never exercise the option to sell for money. These latent money demand considerations imply that in general, in contrast to current conventional wisdom in policy-oriented research in monetary economics, monetary policy can remain effective through medium-of-exchange transmission channels—even in highly developed credit economies where the share of monetary transactions is negligible.

Item Type: Article
Official URL: https://onlinelibrary.wiley.com/journal/14680262
Additional Information: © 2022 The Econometric Society.
Divisions: Economics
Subjects: H Social Sciences > HB Economic Theory
Date Deposited: 15 Jul 2022 14:45
Last Modified: 17 Aug 2022 09:15
URI: http://eprints.lse.ac.uk/id/eprint/115575

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