Money and Credit Revisited

26 Pages Posted: 19 Dec 2019 Last revised: 11 Feb 2021

See all articles by Han Han

Han Han

Peking University

Chao He

Liaoning University

Date Written: September 15, 2019

Abstract

Gu, Mattesini, and Wright (2016) show that if money is essential, then nomonetary credit (i.e., deferred payment to sellers) is irrelevant. We find that in an otherwise same model that also allows monetary credit (i.e., borrowing money from third parties), nonmonetary credit is relevant when money is essential. While nonmonetary credit can still be neutral locally, this result critically depends on the tightness of monetary credit. A tight monetary credit limit and loan market clearing restrict how real balances can respond to changes in nonmonetary credit. Money may serve as an accelerator or stabilizer, depending on the types of credit changes and overall credit condition. Our results suggest a subtle three-way relationship among money and the two types of credit.

Keywords: Money, Credit, Debt, Essentiality, Neutrality

JEL Classification: E42, E51

Suggested Citation

Han, Han and He, Chao, Money and Credit Revisited (September 15, 2019). Available at SSRN: https://ssrn.com/abstract=3497788 or http://dx.doi.org/10.2139/ssrn.3497788

Han Han

Peking University ( email )

No. 38 Xueyuan Road
Haidian District
Beijing, Beijing 100871
China

Chao He (Contact Author)

Liaoning University ( email )

Shenyang, Liaoning
China

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