Working Paper: CEPR ID: DP4039
Authors: Ramon Marimon; Juan Pablo Nicolini; Pedro Teles
Abstract: 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.
Keywords: currency competition; electronic money; inflation; inside money; reputation
JEL Codes: E40; E50; E58; E60
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| inside money competition (L13) | equilibrium inflation rate (E31) |
| efficiency of producing inside money (E51) | equilibrium inflation rate (E31) |
| inside money competition (L13) | outside money circulation (E42) |