Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/126586
Authors: 
Andolfatto, David
Berentsen, Aleksander
Waller, Christopher
Year of Publication: 
2015
Series/Report no.: 
Working Paper Series, University of Zurich, Department of Economics 198
Abstract: 
We study the use of asset-backed money in a neoclassical growth model with illiquid capital. A mechanism is delegated control of productive capi- tal and issues claims against the revenue it earns. These claims constitute a form of asset-backed money. The mechanism determines (i) the number of claims outstanding, (ii) the dividends paid to claim holders, and (iii) the structure of redemption fees. We find that for capital-rich economies, the first-best allocation can be implemented and price stability is optimal. However, for sufficiently capital-poor economies, achieving the first-best allocation requires a strictly positive rate of inflation. In general, the minimum infiation necessary to implement the first-best allocation is above the Friedman rule and varies with capital wealth.
Subjects: 
Limited Commitment
Asset-Backed Money
Optimal Monetary Policy
JEL: 
D82
D83
E61
G32
Document Type: 
Working Paper

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