Working Paper

The evolution of cash transactions: some implications for monetary policy

Abstract: This paper considers the implications of a decreasing demand for cash transactions under several monetary policy regimes. A policy of nominal-interest-rate targeting implies that a secular decline in the volume of cash transactions unambiguously leads to accelerating inflation. A policy of maintaining a fixed composition of government liabilities leads to accelerating (decelerating) inflation if agents have sufficiently high (low) levels of risk aversion. A policy of inflation targeting produces falling nominal and real interest rates, while a policy of fixing the rate of money growth can easily lead to indeterminacy and endogenous oscillation in interest rates.

Keywords: Payment systems; Monetary policy - United States; Money;

Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Financial Services working paper

Publication Date: 1997

Number: 97-04