Aggregate Uncertainty, Money and Banking
AbstractThis paper studies the problem of monitoring the monitor in a model of money and banking with aggregate uncertainty. It shows that when inside money is required as a means of bank loan repayment, a market of inside money is entailed at the repayment stage and generates information-revealing prices that perfectly discipline the bank. The incentive problem of a bank is costlessly overcome simply by involving inside money in repayment. Inside money distinguishes itself from outside money by its inherent ability to provide incentives even on the existence of multiple banks. Thus, in addition to providing liquidity to the economy, inside money contributes to banking by eliminating the cost of monitoring the bank and improving the efficiency of intermediation. Moreover, this model establishes that markets can be a favorable instrument for incentives of truthful revelation
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 58.
Date of creation: 03 Dec 2006
Date of revision:
Contact details of provider:
Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Web page: http://www.EconomicDynamics.org/society.htm
More information through EDIRC
Money; Banking; Aggregate Uncertainty;
Other versions of this item:
- E00 - Macroeconomics and Monetary Economics - - General - - - General
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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.:
- Krasa, Stefan & Villamil, Anne P, 1992. "A Theory of Optimal Bank Size," Oxford Economic Papers, Oxford University Press, vol. 44(4), pages 725-49, October.
- Gorton, Gary B. & Haubrich, Joseph G., 1987.
"Bank deregulation, credit markets, and the control of capital,"
Carnegie-Rochester Conference Series on Public Policy,
Elsevier, vol. 26(1), pages 289-333, January.
- G.B. Gorton & J.G. Haubrich, . "Bank Deregulation, Credit Markets and the Control of Capital," Rodney L. White Center for Financial Research Working Papers 08-86, Wharton School Rodney L. White Center for Financial Research.
- G. B. Gorton & J. G. Haubrich, . "Bank Deregulation, Credit Markets and the Control of Capital," Rodney L. White Center for Financial Research Working Papers 8-86, Wharton School Rodney L. White Center for Financial Research.
- Ricardo de O. Cavalcanti & Neil Wallace, 1999.
"Inside and outside money as alternative media of exchange,"
Federal Reserve Bank of Cleveland, pages 443-468.
- 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.
- 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.
- Hammond, Peter J, 1987. "Markets as Constraints: Multilateral Incentive Compatibility in Continuum Economies," Review of Economic Studies, Wiley Blackwell, vol. 54(3), pages 399-412, July.
- Hammond, Peter J, 1979. "Straightforward Individual Incentive Compatibility in Large Economies," Review of Economic Studies, Wiley Blackwell, vol. 46(2), pages 263-82, April.
- Shi, Shouyong, 1996.
"Credit and Money in a Search Model with Divisible Commodities,"
Review of Economic Studies,
Wiley Blackwell, vol. 63(4), pages 627-52, October.
- Shouyong Shi, 1995. "Credit and Money in a Search Model with Divisible Commodities," Working Papers 917, Queen's University, Department of Economics.
- David Andolfatto & Ed Nosal, 2003.
"A theory of money and banking,"
0310, Federal Reserve Bank of Cleveland.
- Williamson, Stephen D., 1986.
"Costly monitoring, financial intermediation, and equilibrium credit rationing,"
Journal of Monetary Economics,
Elsevier, vol. 18(2), pages 159-179, September.
- Stephen D. Williamson, 1984. "Costly Monitoring, Financial Intermediation, and Equilibrium Credit Rationing," Working Papers 583, Queen's University, Department of Economics.
- Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 393-414, July.
- Ping He & Lixin Huang & Randall Wright, 2005. "Money And Banking In Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(2), pages 637-670, 05.
- Hongfei Sun, 2007.
"Banking, Inside Money and Outside Money,"
1146, Queen's University, Department of Economics.
- Allen Head & Junfeng Qiu, 2011. "Elastic Money, Inflation, and Interest Rate Policy," Working Papers 1152, Queen's University, Department of Economics.
- Parag Waknis, 2011. "Monetary Policy under Leviathan Currency Competition," Working papers 2011-21, University of Connecticut, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann).
If references are entirely missing, you can add them using this form.