The Economics of Payments

67 Pages Posted: 28 Oct 2007

See all articles by Ed Nosal

Ed Nosal

Federal Reserve Banks - Federal Reserve Bank of Atlanta

Guillaume Rocheteau

Federal Reserve Bank of Cleveland; National University of Singapore (NUS)

Date Written: February 2006

Abstract

In this paper we provide a survey of the payment literature in a unified framework. The environment is a variant of the Lagos and Wright (2005) model of monetary exchange, where some trades occur in bilateral meetings while others occur in more or less decentralized markets. We use this basic environment to introduce alternative sets of trading frictions that give rise to different payments instruments and/or payments institutions. We investigate credit economies, monetary economies, and economies in which money and credit coexist. We also study alternative assets, such as foreign exchange, capital (equity), and government liabilities, which can be used as payment instruments in conjunction with money. We introduce banks as deposit-taking institutions whose liabilities circulate in the economy. We also provide an extension in which the process of the settlement of debt for money is modeled and the potential social costs of settlement are characterized. Finally, we investigate government policy responses to the social costs introduced by various trading frictions.

Suggested Citation

Nosal, Ed and Rocheteau, Guillaume, The Economics of Payments (February 2006). FRB of Cleveland Policy Discussion Paper No. 14. Available at SSRN: https://ssrn.com/abstract=1024834 or http://dx.doi.org/10.2139/ssrn.1024834

Ed Nosal (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

Guillaume Rocheteau

Federal Reserve Bank of Cleveland ( email )

PO Box 6387
Cleveland, OH 44101-1387
United States

National University of Singapore (NUS) ( email )

Bukit Timah Road 469 G
Singapore, 117591
Singapore

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