Nominal contracts and the payment system

Hajime Tomura*


研究成果: Article査読


This paper introduces into an overlapping generations model the civil court’s inability to distinguish different qualities of goods of the same kind. This friction prevents the enforcement of real credit contracts through the civil court. Given this environment, fiat money is introduced into the model as an intrinsically useless, but recognizable instrument for the court. With fiat money, there exists an equilibrium in which agents write pledgeable nominal debt contracts, while fiat money circulates as both a means of debt repayment and a means of payment for goods. This result does not require dynamic inefficiency or lack of double coincidence of wants. However, there can occur a shortage of real money balances for debt repayments, because lenders must pay fiat money for borrowers’ output before receiving the repayment of debt, in order for borrowers to obtain fiat money to repay debt. The central bank can resolve this bottleneck if it provides an elastic money supply through a discount window within each period. These results replicate two institutional features of the current monetary system—that is, fiat money being legal tender and a discount window offered by the central bank—in an unified framework.

ジャーナルJapanese Economic Review
出版ステータスPublished - 2021 4月

ASJC Scopus subject areas

  • 経済学、計量経済学


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