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.
File(s): File format is application/pdf http://www.clevelandfed.org/research/FSRG/fsrg0497.pdf
Provider: Federal Reserve Bank of Cleveland
Part of Series: Financial Services working paper
Publication Date: 1997