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Are banks special? A note on Tobin’s theory of financial intermediaries

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  • Bertocco Giancarlo

    ()
    (Department of Economics, University of Insubria, Italy)

Abstract

Since the 1960s Tobin has set himself the objective of developing a macroeconomic model more general than that specified by Keynes in The General Theory. Keynes had assumed that all the assets different from money were perfect substitutes; this hypothesis allowed him to explain only one interest rate. On the contrary, Tobin abandons the perfect substitutability hypothesis and elaborates a theoretical model which envisages more than two assets and explicitly deals with financial intermediaries. Moreover Tobin asks himself whether banks play a special role compared with the other intermediaries and elaborates a ‘new view’ which, in contrast with the ‘old view’, maintains that there are no reasons to attribute a special role to the banks. This paper critically analyses Tobin’s theory and presents two results. First, it shows that Tobin’s theory overlooks an important function of banks; a function highlighted by Keynes in some writings which preceded and followed the publications of The General Theory. Second, this work shows that Tobin’s thesis that the specificity of banks does not exist can be confirmed, albeit on different grounds, also taking into account the function of banks that he overlooks. The paper is divided into four parts: in the first one, the most important aspects of the Tobin’s ‘new view’ are described. The limitations of these theoretical approaches are then showed in the second section; in the last two sections the elements of an alternative theory are outlined.y.

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Paper provided by Department of Economics, University of Insubria in its series Economics and Quantitative Methods with number qf0605.

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Length: 25 pages
Date of creation: Jul 2006
Date of revision:
Handle: RePEc:ins:quaeco:qf0605

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  1. Paruolo Paolo, 2004. "The likelihood ratio test for the rank of a cointegration submatrix," Economics and Quantitative Methods qf04024, Department of Economics, University of Insubria.
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  6. Oberhofer, W & Kmenta, J, 1974. "A General Procedure for Obtaining Maximum Likelihood Estimates in Generalized Regression Models," Econometrica, Econometric Society, vol. 42(3), pages 579-90, May.
  7. Johansen, Søren & Juselius, Katarina, 1992. "Testing structural hypotheses in a multivariate cointegration analysis of the PPP and the UIP for UK," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 211-244.
  8. Hendry, David F., 1984. "Monte carlo experimentation in econometrics," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 16, pages 937-976 Elsevier.
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