Document Type


Date of Degree


Degree Name

PhD (Doctor of Philosophy)

Degree In


First Advisor

Stephen D. Williamson


This dissertation studies the relationship between the existence of multiple means of payment and the effects of monetary policy.

Chapter 1 studies the choice of endogenous means of payment when holding money is risky. In steady state equilibrium, the marginal rate of substitution of cash goods for credit goods depends on the crime rate as well as the nominal interest rate. Credit may be used when the return on money is not positive. A positive money injection reduces the crime rate and transactions costs. When the crime rate is positive, welfare increase with inflation, and the Friedman rule is not necessarily optimal.

Chapter 2 discusses the risk-sharing role of monetary policy when the asset market is segmented. A fraction of households exchange money for interest-bearing government nominal bonds in the asset market. The government injects money through open market operations with only participating households. In equilibrium, money is nonneutral and there are distributional effects of monetary policy. With idiosyncratic endowment risk, monetary policy cannot perfectly insure households. The optimal money growth rate can be positive and the Friedman rule is not optimal in general.

Chapter 3 is built on the work of Chapter 1 and Chapter 2 in exploring distributional effects of monetary policy when individuals can choose means of payment among alternatives. In equilibrium, monetary policy has distributional effects. With a positive money injection, some households purchase a greater variety of goods with cash while others purchase a greater variety of goods with credit. Consumption may increase or decrease because household can choose alternative means of payment. Credit is used to dampen fluctuations in consumption arising from monetary policy. The liquidity effect arises under a certain condition.


viii, 99




Copyright 2008 Hyung Sun Choi

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