The Korean Economic Review
Multiple Means of Payment, Excess Reserves, and Monetary Policy
Hyung Sun Choi (Kyung Hee University), Manjong Lee (Korea University)Year 2016Vol. 32No. 1
The effects of choosing between cash and credit as a means of payment on bank’s excessreserves are explored in the proposed model. The model incorporates the widespread recentfeatures of payment patterns and financial services. Results suggest that credit increases excessreserves and generates leeway for banks to invest in interest-bearing assets. Given the growthrate of money, credit transactions increase, but welfare decreases. This phenomenon impliesthe optimality of the Friedman rule.