We are indebted to two anonymous referees for several helpful suggestions that improved the exposition of the paper. We also thank Will Roberds as well as participants in the meetings of the SED 2001, Midwest Macro 2002, Econometric Society Summer 2002, workshops at the University of Iowa and the Federal Reserve Banks of Cleveland (Central Bank Institute), and seminars at the Federal Reserve Banks in St. Louis and Atlanta. The research of Gabriele Camera has been partially supported by the NSF grant DMS-0437210.
Another Example of a Credit System that Co-Exists with Money
Article first published online: 12 AUG 2008
© 2008 The Ohio State University
Journal of Money, Credit and Banking
Volume 40, Issue 6, pages 1295–1308, September 2008
How to Cite
CAMERA, G. and LI, Y. (2008), Another Example of a Credit System that Co-Exists with Money. Journal of Money, Credit and Banking, 40: 1295–1308. doi: 10.1111/j.1538-4616.2008.00158.x
- Issue published online: 12 AUG 2008
- Article first published online: 12 AUG 2008
- Received March 9, 2006; and accepted in revised form May 29, 2007.
We study an economy in which exchange occurs pairwise, there is no commitment, and anonymous agents choose between random monetary trade or deterministic credit trade. To accomplish the latter, agents can exploit a costly technology that allows limited record-keeping, and enforcement. An equilibrium with money and credit is shown to exist if the cost of using the technology is sufficiently small. Anonymity, record-keeping, and enforcement limitations also permit some incidence of default, in equilibrium.