The Limits of ONETARY ECONOMICS: On Money as a Constraint on Market Power

Ricardo Lagos, Shengxing Zhang

    Research output: Contribution to journalArticlepeer-review


    We formulate a generalization of the traditional medium-of-exchange function of money in contexts where there is imperfect competition in the intermediation of credit, settlement, or payment services used to conduct transactions. We find that the option to settle transactions with money strengthens the stance of sellers of goods and services in relation to intermediaries, and show this mechanism is operative even for sellers who never exercise the option to sell for money. These latent money demand considerations imply that in general, in contrast to current conventional wisdom in policy-oriented research in monetary economics, monetary policy can remain effective through medium-of-exchange transmission channels—even in highly developed credit economies where the share of monetary transactions is negligible.

    Original languageEnglish (US)
    Pages (from-to)1177-1204
    Number of pages28
    Issue number3
    StatePublished - May 2022


    • Cashless
    • credit
    • liquidity
    • monetary policy
    • money

    ASJC Scopus subject areas

    • Economics and Econometrics


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