DP4039 Inside-Outside Money Competition
Author(s): | Ramon Marimon, Juan Pablo Nicolini, Pedro Teles |
Publication Date: | September 2003 |
Keyword(s): | currency competition, electronic money, inflation, inside money, reputation |
JEL(s): | E40, E50, E58, E60 |
Programme Areas: | International Macroeconomics |
Link to this Page: | cepr.org/active/publications/discussion_papers/dp.php?dpno=4039 |
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.