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Loanable funds vs money creation in banking: A benchmark result

Author

Listed:
  • Faure, Salomon A.
  • Gersbach, Hans

Abstract

We establish a benchmark result for the relationship between the loanablefunds and the money-creation approach to banking. In particular, we show that both processes yield the same allocations when there is no uncertainty and thus no bank default. In such cases, using the much simpler loanablefunds approach as a shortcut does not imply any loss of generality.

Suggested Citation

  • Faure, Salomon A. & Gersbach, Hans, 2017. "Loanable funds vs money creation in banking: A benchmark result," CFS Working Paper Series 587, Center for Financial Studies (CFS).
    • Handle: RePEc:zbw:cfswop:587
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    Citations

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    Cited by:

    1. Wang, Tianxi, 2021. "An Interbank Network Determined by the Real Economy," Economics Discussion Papers 30021, University of Essex, Department of Economics.
    2. Goodhart, Charles A.E. & Tsomocos, Dimitrios P. & Wang, Xuan, 2023. "Bank credit, inflation, and default risks over an infinite horizon," Journal of Financial Stability, Elsevier, vol. 67(C).
    3. Xuan Wang, 2019. "When Do Currency Unions Benefit From Default ?," 2019 Papers pwa938, Job Market Papers.
    4. Xuan Wang, 2021. "Bankruptcy Codes and Risk Sharing of Currency Unions," Tinbergen Institute Discussion Papers 21-009/IV, Tinbergen Institute.
    5. Kumhof, Michael & Wang, Xuan, 2021. "Banks, money, and the zero lower bound on deposit rates," Journal of Economic Dynamics and Control, Elsevier, vol. 132(C).
    6. Xuan Wang, 2020. "A Macro-Financial Perspective to Analyse Maturity Mismatch and Default," Tinbergen Institute Discussion Papers 20-064/IV, Tinbergen Institute.
    7. Wang, Xuan, 2023. "A macro-financial perspective to analyse maturity mismatch and default," Journal of Banking & Finance, Elsevier, vol. 151(C).

    More about this item

    Keywords

    money creation; bank deposits; capital regulation; monetary policy; loanable funds;
    All these keywords.

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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