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Liquidity, Financial Intermediation, and Monetary Policy in a New Monetarist Model

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  • Stephen D. Williamson

    (Washington University in St. Louis)

Abstract

A model of monetary exchange with private financial intermediation is constructed. Claims on financial intermedaries of two types are traded in transactions: circulating notes and deposits. There can be a role for the government in supplying liqudity, and level changes in the money supply accomplished through open market operations can be nonneutral. A Friedman rule is suboptimal, due to costs of maintaining the stock of currency. The model is used to address some issues related to current monetary policy in the United States.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2010 Meeting Papers with number 244.

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Date of creation: 2010
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Handle: RePEc:red:sed010:244

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References

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  1. Ricardo Cavalcanti & Andres Erosa & Ted Temzelides, 1998. "Private Money and Reserve Management in a Random Matching Model," Macroeconomics 9803008, EconWPA.
  2. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 401-19, June.
  3. Smith, Bruce D & Weber, Warren E, 1999. "Private Money Creation and the Suffolk Banking System," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 624-59, August.
  4. Sanches, Daniel & Williamson, Stephen, 2010. "Money and credit with limited commitment and theft," Journal of Economic Theory, Elsevier, vol. 145(4), pages 1525-1549, July.
  5. Ricardo Lagos & Guillaume Rocheteau, 2006. "Money and capital as competing media of exchange," Working Paper 0608, Federal Reserve Bank of Cleveland.
  6. Ricardo Lagos & Randall Wright, 2004. "A unified framework for monetary theory and policy analysis," Staff Report 346, Federal Reserve Bank of Minneapolis.
  7. Williamson, Stephen D, 1987. "Financial Intermediation, Business Failures, and Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1196-1216, December.
  8. Williamson, S.D., 1998. "Private Money," Working Papers 98-09, University of Iowa, Department of Economics.
  9. Lagos, Ricardo, 2010. "Asset prices and liquidity in an exchange economy," Journal of Monetary Economics, Elsevier, vol. 57(8), pages 913-930, November.
  10. Benjamin Lester & Andrew Postlewaite & Randall Wright, 2011. "Information and Liquidity," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 355-377, October.
  11. Ricardo de O. Cavalcanti & Neil Wallace, 1999. "Inside and outside money as alternative media of exchange," Proceedings, Federal Reserve Bank of Cleveland, pages 443-468.
  12. Champ, B. & Smith, B.D., 1991. "Currency Elasticity and Banking Panics: theory and Evidence," University of Western Ontario, The Centre for the Study of International Economic Relations Working Papers 9109, University of Western Ontario, The Centre for the Study of International Economic Relations.
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  1. Teachable Moment
    by Stephen Williamson in Stephen Williamson: New Monetarist Economics on 2013-12-02 00:19:00
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Cited by:
  1. Williamson, Stephen D. & Wright, Randall, 2010. "New Monetarist Economics: Methods," MPRA Paper 21486, University Library of Munich, Germany.
  2. Ed Nosal & Christopher Waller & Randall Wright, 2010. "Introduction to the macroeconomic dynamics: special issues on money, credit, and liquidity," Working Paper Series WP-2010-14, Federal Reserve Bank of Chicago.
  3. Airaudo, Marco & Olivero, María Pía, 2014. "Optimal Monetary Policy with Counter-Cyclical Credit Spreads," School of Economics Working Paper Series 2014-1, LeBow College of Business, Drexel University.

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