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Dynamic Banking : A Reconsideration

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Author Info

  • Bhattacharya, S.

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

  • Padilla, A. Jorge

    (CEMFI, Madrid; CEPR)

Abstract

Financially Intermediated and Stock Market consumption-investment allocations, with (and without) governmental interventions, are compared in a welfare sense in overlapping generations economies with ( and without) shocks to agents’ international preferences. We show that, first, tax-subsidy schemes under the same informational requirements needed for financial intermediation to function, lead to stock market allocations that are identical, or superior, to those attained under financial intermediation. Second, we argue that the necessary interventions are qualitatively no different from those required to implement stationary optimal allocations in OLG models without uncertainty regarding agents’ consumption preferences. Thus, we conclude that the provision of liquidity is tangential to stock market efficiency.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 1994031.

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Length: 25
Date of creation: 01 Apr 1994
Date of revision:
Handle: RePEc:ctl:louvir:1994031

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Cited by:
  1. Mallick, Indrajit, 2004. "Strategic Allocation of Liquidity in the InterBank Money Market," MPRA Paper 15427, University Library of Munich, Germany.
  2. Gerald P. Dwyer, Jr. & Margarita Samartín, 2006. "Why do banks promise to pay par on demand?," Working Paper 2006-26, Federal Reserve Bank of Atlanta.
  3. Jos van Bommel, 2007. "Endogenous Cycles and Liquidity Risk," Money Macro and Finance (MMF) Research Group Conference 2006 149, Money Macro and Finance Research Group.
  4. Martin, A. & Skeie, D. & Thadden, E.L. von, 2010. "Repo Runs," Discussion Paper 2010-44S, Tilburg University, Center for Economic Research.
  5. Niinimäki, Juha-Pekka, 2002. "Bank panics in transition economies," BOFIT Discussion Papers 2/2002, Bank of Finland, Institute for Economies in Transition.
  6. Gersbachd, Hans, 1998. "Liquidity Creation, Efficiency, and Free Banking," Journal of Financial Intermediation, Elsevier, vol. 7(1), pages 91-118, January.
  7. Franklin Allen & Douglas Gale, 1995. "Financial Markets, Intermediaries, and Intertemporal Smoothing," Center for Financial Institutions Working Papers 95-02, Wharton School Center for Financial Institutions, University of Pennsylvania.
  8. Allen, Franklin & Gale, Douglas, 1995. "A welfare comparison of intermediaries and financial markets in Germany and the US," European Economic Review, Elsevier, vol. 39(2), pages 179-209, February.
  9. Ioannis Lazopoulos, 2005. "Cycles And Banking Crisis," Money Macro and Finance (MMF) Research Group Conference 2005 15, Money Macro and Finance Research Group.
  10. Qian, Yiming & John, Kose & John, Teresa A., 2004. "Financial system design and liquidity provision by banks and markets in a dynamic economy," Journal of International Money and Finance, Elsevier, vol. 23(3), pages 385-403, April.

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