Working Paper: CEPR ID: DP18291
Authors: Dirk Niepelt
Abstract: We analyze the effect of structural change in the payment sector and of monetary policy on prices. Means of payment are obtained through portfolio choices and commodity sales and "liquified" through velocity choices. Interest rates, intermediation margins and costs of payment instrument use affect portfolios, velocities, liquidity, relative prices, and the aggregate price level. Money is neutral, interest rate policy is not. Scarcer liquidity need not drive up velocity. Payment instruments and velocities generate positive externalities. Commodity price aggregates mis-measure consumer price inflation, distinctly so over the business cycle.
Keywords: payments; inflation; velocity; prices; intermediation
JEL Codes: E31; E41; E44; E52; G11; G23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| structural changes in the payment sector (L16) | aggregate price level (E30) |
| structural changes in the payment sector (L16) | prices (P22) |
| money supply (E51) | real economic variables (E39) |
| interest rate policy (E43) | liquidity (E41) |
| liquidity (E41) | prices (P22) |
| interest rate policy (E43) | prices (P22) |
| payment instruments and velocities (E41) | network effect in the payment system (D85) |
| aggregate price measures (C43) | price level (E30) |
| intermediation margins and leakage costs (D61) | price level (E30) |