Abstract
A simple monetary model is constructed to study the implications of an indexed unit of account (Indexed-UoA). In an economy with an Indexed-UoA, the credit-trade friction attributed to inflation can be resolved and unexpected inflation causes no redistribution effect between debtors and creditors. However, in an economy without an Indexed-UoA, credit trades occur only if inflation is not too high and unexpected inflation renders debtors better off, but creditors worse off. In a high-inflation economy, money is used as a unit of account for spot trades only and an Indexed-UoA emerges as a unit of account for deferred-payment trades.
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