Private Money and Reserve Management in a Random Matching Model
AbstractWe introduce an element of centralization in a random matching model of money that allows for private liabilities to circulate as media of exchange. Some agents, which we identify as banks, are endowed with the technology to issue notes and to record-keep reserves with a central clearinghouse, which we call the treasury. The liabilities are redeemed according to a stochastic process that depends on the endogenous trades. The treasury removes the banking technology from banks that are not able to meet the redemptions in a given period. This, together with the market incompleteness, gives rise to a reserve management problem for the issuing banks. We demonstrate that ``sufficiently patient'' banks will concentrate on improving their reserve position instead of pursuing additional issue. The model provides a first attempt to reconcile limited note issue with optimizing behavior by banks during the National Banking Era.
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Date of creation: 27 Mar 1998
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- Ricardo de O. Cavalcanti & Andres Erosa & Ted Temzelides, 1999. "Private Money and Reserve Management in a Random-Matching Model," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 929-945, October.
- Cavalcanti, R. & Erosa, A. & Temzelides, T., 1997. "Private Money and Reserve Management in a Random Matching Model," UWO Department of Economics Working Papers 9715, University of Western Ontario, Department of Economics.
- Ricardo de O. Cavalcanti & Andres Erosa & Ted Temzelides, 1999. "Private money and reserve management in a random-matching model," Discussion Paper / Institute for Empirical Macroeconomics 128, Federal Reserve Bank of Minneapolis.
- Ricardo Cavalcanti & Andres Erosa & Ted Temzelides, 1997. "Private money and reserve management in a random matching model," Working Papers 97-24, Federal Reserve Bank of Philadelphia.
- Cavalcanti, Ricardo & Erosa, Andres & Temzelides, Ted, . "Private Money and Reserve Management in a Random Matching Model," Working Papers 97-17, University of Iowa, Department of Economics, revised Sep 1997.
- Ricardo de O. Cavalcanti & Andres Erosa, 1998. "Private Money And Reserve Management In A Random Matching Model," Macroeconomics 9802010, EconWPA.
- E - Macroeconomics and Monetary Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-1998-10-02 (All new papers)
- NEP-DGE-1998-10-02 (Dynamic General Equilibrium)
- NEP-FMK-1998-10-08 (Financial Markets)
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