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An Idealized View of Financial Intermediation

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Author Info
Carolyn Sissoko () (Department of Economics, Occidental College)

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Abstract

We consider an environment where the general equilibrium assumption that every agent buys and sells simultaneously is relaxed. We show that fiat money can implement a Pareto optimal allocation only if taxes are type-specific. We then consider intermediated money by assuming that financial intermediaries whose liabilities circulate as money have an important identifying characteristic: they are widely viewed as default-free. The paper demonstrates that default-free intermediaries who issue deposit accounts with credit lines to consumers can resolve the monetary problem and make it possible for the economy to reach a Pareto optimum.

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File URL: http://departments.oxy.edu/economics/papers/money2.pdf
File Format: application/pdf
File Function: Revised version, 2007
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Publisher Info
Paper provided by Occidental College, Department of Economics in its series Occidental Economics Working Papers with number 6.

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Length: 28 pages
Date of creation: Mar 2006
Date of revision: Jun 2007
Handle: RePEc:occ:wpaper:6

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E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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  1. Narayana R. Kocherlakota, 2002. "Money: What's the Question and Why Should We Care About the Answer?," American Economic Review, American Economic Association, vol. 92(2), pages 58-61, May. [Downloadable!]
  2. Edward J. Green & Ruilin Zhou, 2005. "Money As A Mechanism In A Bewley Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(2), pages 351-371, 05. [Downloadable!] (restricted)
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  3. Brock, William A., 1975. "A simple perfect foresight monetary model," Journal of Monetary Economics, Elsevier, vol. 1(2), pages 133-150, April. [Downloadable!] (restricted)
  4. Joydeep Bhattacharya & Joseph H. Haslag & Antoine Martin, 2004. "Heterogeneity, redistribution, and the Friedman rule," Research Working Paper RWP 04-01, Federal Reserve Bank of Kansas City. [Downloadable!]
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  5. 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)
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  6. Kehoe, Timothy J & Levine, David K, 1993. "Debt-Constrained Asset Markets," Review of Economic Studies, Blackwell Publishing, vol. 60(4), pages 865-88, October. [Downloadable!] (restricted)
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  7. Stephen D. Williamson, 1999. "Private money," Proceedings, Federal Reserve Bank of Cleveland, pages 469-499.
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  8. Carolyn Sissoko, 2007. "Why Inside Money Matters," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(8), pages 2097-2105, December. [Downloadable!] (restricted)
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  9. Neil Wallace, 1998. "A dictum for monetary theory," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 20-26. [Downloadable!]
  10. Bulow, Jeremy & Rogoff, Kenneth, 1989. "Sovereign Debt: Is to Forgive to Forget?," American Economic Review, American Economic Association, vol. 79(1), pages 43-50, March. [Downloadable!] (restricted)
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  11. 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)
  12. Cavalcanti, Ricardo de O & Wallace, Neil, 1999. "Inside and Outside Money as Alternative Media of Exchange," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 443-57, August.
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  13. Ricardo de O. Cavalcanti & Neil Wallace, 1999. "A model of private bank-note issue," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 104-136, January. [Downloadable!] (restricted)
  14. Stephen Williamson, 2004. "Limited participation, private money, and credit in a spatial model of money," Economic Theory, Springer, vol. 24(4), pages 857-875, November. [Downloadable!] (restricted)
  15. Aleksander Berentsen & Gabriele Camera & Christopher Waller, 2005. "Money, Credit and Banking," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  16. Mills, David C., 2007. "A Model In Which Outside And Inside Money Are Essential," Macroeconomic Dynamics, Cambridge University Press, vol. 11(03), pages 347-366, June. [Downloadable!]
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