A pure credit economy

In a flexible price production economy, overlapping generations with perfec t foresight exchange money created endogenously as a byproduct of bank fina nce. Nominal interest rates are pegged by monetary policy. In the steady st ate, real and nominal rates are inversely correlated. Output, employment, a nd real wages fall in response to a lower nominal rate peg. The model displ ays a positively sloped long-run Phillips curve and a Tobin effect: both re al output and the capital-labour ratio rise with higher inflation.