Towards a Reformulation of Monetary Theory: Competitive Banking
AbstractThis paper, after providing a critique of standard monetary theory based on the transactions demand for money, examines the effect of monetary policy (changes in reserve requires and open market operations) in a model with competitive, risk averse banks. The effects of changes in bank net worth and bank's risk perceptions are also analyzed. In deep recessions, monetary policy may be ineffective because banks are unwilling to lend. The effects of monetary policy are, at most, only partially mediated through changes in the interest rate. The implications for traditional IS-LM analysis are briefly noted.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4117.
Date of creation: Jul 1992
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