The Joint Services of Money & Credit

While credit cards provide transaction services, as do currency and demand deposits, credit cards have never been included in measures of the money supply. The reason is accounting conventions, which do not permit adding liabilities, such as credit card balances, to assets, such as money. But economic aggregation theory and index number theory are based on microeconomic theory, not accounting, and measure service flows. We derive theory needed to measure the joint services of credit cards and money. The underlying assumption is that credit card services are not weakly separable from the services of monetary assets. Carried forward rotating balances are not included, since they were used for transactions services in prior periods.

The theory is developed for the representative consumer, who pays interest for the services of credit cards during the period used for transactions. In the transmission mechanism of central bank policy, our results raise potentially fundamental questions about the traditional dichotomy between money and some forms of short term credit, such as checkable lines of credit.

I had the opportunity to present this paper, via video, along with my co-author Liting Su at the International Conference on Economic Recovery in the Post-Crisis Period  in Skopje, Republic of Macedonia (May 29-30, 2015). To see a video of this presentation, click here. (Download High Res .m4v) The paper can be found here.

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About William A. Barnett

Dr. Barnett is Director of Advances in Monetary and Financial Measurement at the Center for Financial Stability. Dr. Barnett is Oswald Distinguished Professor of Macroeconomics at the University of Kansas Department of Economics and Core Faculty Member of the Center for Global and International Studies at the University of Kansas, as well as Senior Fellow of the IC2 Institute at the University of Texas at Austin. He is founder and editor of the Cambridge University Press journal, Macroeconomic Dynamics, and founder and editor of the Emerald Press monograph series, International Symposia in Economic Theory and Econometrics.