Product Selection in Financial Intermediation, Optimal Money Growth, and Central Bank Lending
AbstractThis paper develops a general equilibrium model of 'spatially' competitive financial intermediaries, in an overlapping generations framework of borrowing and lending. The model studies the implications of an endogenously determined menu of intermediary assets and liabilities for some aspects of monetary policy. The optimal money growth rate is negative but bears no relation to the rate of time preference. A novel role is found for central bank lending with differs from the usual lender-of-last-resort rationale. The rationing of central bank loans is optimal, justifying existing central banking practices.
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Bibliographic InfoPaper provided by Queen's University, Department of Economics in its series Working Papers with number 576.
Length: 32 pages
Date of creation: 1984
Date of revision:
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