The Korean Economic Review
Inflation Risk, Settlement Cycles, and Monetary Policy
Hyung Sun Choi (Kyung Hee University)Year 2018Vol. 34No. 2
AbstractA monetary model is constructed to explore the risk-sharing role of multiple installment payments for credit settlement against inflation risk when the choice of cash and credit is endogenous. Economic individuals acquire liquidity for cash consumption and credit settlement. In equilibrium, the choice of a debt rollover may adjust the demand for liquidity in credit settlement to dampen consumption loss. Welfare benefits result from inflation. The optimal money growth is positive with a zero nominal interest rate and a one-period settlement cycle.