Credit cards and inflation

نویسندگان

  • John Geanakoplos
  • Pradeep Dubey
چکیده

The introduction (and widespread use) of credit cards increases trading efficiency but, by also increasing the velocity of money, it causes massive inflation, in the absence of monetary intervention. If the monetary authority attempts to restore pre-credit card price levels by reducing the money supply, it will have to sacrifice all the efficiency gains. When there is default on credit cards, there is even more inflation, and less efficiency gain. The monetary authority will then have to accept less than pre-credit card efficiency in order to restore pre-credit card price levels, or else it will have to accept substantial inflation if it is unwilling to cut efficiency below pre-credit card levels. This is stagflation.

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Article history: Received 8 February 2010 Available online 11 February 2010 JEL classification: D50 D51 D53 D61 E40 E50 E51 E52 E58

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عنوان ژورنال:
  • Games and Economic Behavior

دوره 70  شماره 

صفحات  -

تاریخ انتشار 2010