Payments, Credit and Asset Prices
AbstractThis paper studies a monetary economy with two layers of transactions. In enduser
transactions, households and institutional investors pay for goods and securities with payment
instruments provided by banks. Endusers’ payment instructions generate interbank
transactions that banks handle with reserves or interbank credit. The model links the
payments system and securities markets so that beliefs about asset payoffs matter for the
price level, and monetary policy matters for real asset values.