Inside-outside money competition
Abstract: We study how competition from privately supplied currency substitutes affects monetary equilibria. Whenever currency is inefficiently provided, inside money competition plays a disciplinary role by providing an upper bound on equilibrium inflation rates. Furthermore, if "inside monies" can be produced at a sufficiently low cost, outside money is driven out of circulation. Whenever a 'benevolent' government can commit to its fiscal policy, sequential monetary policy is efficient and inside money competition plays no role.
File(s): File format is application/pdf http://www.chicagofed.org/digital_assets/publications/working_papers/2003/wp2003-09.pdf
Provider: Federal Reserve Bank of Chicago
Part of Series: Working Paper Series
Publication Date: 2003