Intermediaries and payments instruments

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Intermediaries and payments instruments

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James Bullard
Bruce D. Smith

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Abstract

We study an economy in which intermediaries have incentives to issue circulating liabilities as part of an equilibrium. We show that, with arbitrarily small transactions costs, only the liabilities of intermediaries will circulate, and not those of other private sector agents. Therefore, our model connects intermediation activity with the issuance of payments media, a connection that has not been made in earlier literature. We also describe conditions under which equilibrium outcomes may be volatile when private liabilities circulate. Finally, we use our model to suggest a resolution of the "banknote underissue puzzle" of Cagan (1993).

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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2002-006.

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Date of creation: 2002
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Handle: RePEc:fip:fedlwp:2002-006

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Article
- Bullard, James & Smith, Bruce D., 2003. "Intermediaries and payments instruments," Journal of Economic Theory, Elsevier, vol. 109(2), pages 172-197, April. [Downloadable!] (restricted)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Bruce A. Champ & Neil Wallace & Warren E. Weber, 1993. "Interest rates under the U.S. national banking system," Staff Report 161, Federal Reserve Bank of Minneapolis. [Downloadable!]
Other versions:
- Bruce Champ & Neil Wallace & Warren Weber, 1993. "Interest Rates Under the U.S. National Banking System," Economic History 9310001, EconWPA. [Downloadable!]
- Champ, Bruce & Wallace, Neil & Weber, Warren E., 1994. "Interest rates under the U.S. national banking system," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 343-358, December. [Downloadable!] (restricted)
James Bullard & Bruce D. Smith, 2001. "The value of inside and outside money," Working Papers 2000-027, Federal Reserve Bank of St. Louis. [Downloadable!]
Other versions:
- Bullard, James & Smith, Bruce D., 2003. "The value of inside and outside money," Journal of Monetary Economics, Elsevier, vol. 50(2), pages 389-417, March. [Downloadable!] (restricted)
Bruce Champ & Bruce D. Smith & Stephen D. Williamson, 1996. "Currency Elasticity and Banking Panics: Theory and Evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 29(4), pages 828-64, November. [Downloadable!] (restricted)
Other versions:
- Champ, B. & Smith, B.D., 1991. "Currency Elasticity and Banking Panics: theory and Evidence," University of Western Ontario, The Centre for the Study of International Economic Relations Working Papers 9109, University of Western Ontario, The Centre for the Study of International Economic Relations.
- Champ, B. & Snith, B.D. & Williamson, D.S., 1991. "Currency Elasticity and Banking Panics: Theory and Evidence," RCER Working Papers 292, University of Rochester - Center for Economic Research (RCER).
Thomas J. Sargent & Neil Wallace, 1983. "A model of commodity money," Staff Report 85, Federal Reserve Bank of Minneapolis. [Downloadable!]
Other versions:
- Sargent, Thomas J. & Wallace, Meil, 1983. "A model of commodity money," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 163-187. [Downloadable!] (restricted)
Ostroy, Joseph M & Starr, Ross M, 1974. "Money and the Decentralization of Exchange," Econometrica, Econometric Society, vol. 42(6), pages 1093-1113, November. [Downloadable!] (restricted)
Townsend, Robert M, 1987. "Economic Organization with Limited Communication," American Economic Review, American Economic Association, vol. 77(5), pages 954-71, December. [Downloadable!] (restricted)
Champ, Bruce & Freeman, Scott & Weber, Warren E, 1999. "Redemption Costs and Interest Rates under the U.S. National Banking System," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 568-89, August.
Other versions:
- Bruce Champ & Scott Freeman & Warren E. Weber, 1999. "Redemption costs and interest rates under the U.S. National Banking System," Proceedings, Federal Reserve Bank of Cleveland, pages 568-595.
Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 401-19, June. [Downloadable!] (restricted)
Other versions:
- Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23. [Downloadable!]
Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August. [Downloadable!] (restricted)
Williamson, Stephen D., 1986. "Costly monitoring, financial intermediation, and equilibrium credit rationing," Journal of Monetary Economics, Elsevier, vol. 18(2), pages 159-179, September. [Downloadable!] (restricted)
Other versions:
- Stephen D. Williamson, 1984. "Costly Monitoring, Financial Intermediation, and Equilibrium Credit Rationing," Working Papers 583, Queen's University, Department of Economics.

Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

David Andolfatto & Ed Nosal, 2003. "A Theory of Money and Banking," Macroeconomics 0310003, EconWPA. [Downloadable!]
Other versions:
- David Andolfatto & Ed Nosal, 2003. "A theory of money and banking," Working Paper 0310, Federal Reserve Bank of Cleveland. [Downloadable!]
Xavier Cuadras Morató, 2005. "Circulation of Private Notes during a Currency Shortage," Economics Working Papers 811, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
Allen Head & Junfeng Qiu, 2007. "Elastic Money, Inflation, and Interest Rate Policy," Working Papers 1152, Queen's University, Department of Economics. [Downloadable!]
Carolyn Sissoko, 2002. "Short-Term Credit: A Monetary Channel Linking Finance to Growth," Occidental Economics Working Papers 8, Occidental College, Department of Economics, revised Jun 2006. [Downloadable!]

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