Sticky Prices and Costly Credit

• DOI: 10.2139/ssrn.4360418
• Publication Date: 2023-02-17T21:25:27Z
• Authors: Liang Wang; Randall D. Wright; Lucy Qian Liu
• Keywords: 0502 economics and business; 05 social sciences; 8. Economic growth

We develop a theory of money and credit as competing payment instruments, then put it to work in applications. Agents use cash because the former (latter) is subject inflation tax (transaction costs). Frictions that make choice method interesting also imply equilibrium price dispersion. derive closed-form solutions for demand, show how simultaneously account price-change facts, cash-credit shares micro data, money-interest correlations macro data. The effects on welfare, dispersion markups are discussed, nonstationary equilibria with dynamics distribution.