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.