An Idealized View of Financial Intermediation
AbstractUsing the monetary model developed in Sissoko (2007), where the general equilibrium assumption that every agent buys and sells simultaneously is relaxed, we observe that in this environment fiat money can implement a Pareto optimum only if taxes are type-specific. We then consider intermediated money by assuming that financial intermediaries whose liabilities circulate as money have an important identifying characteristic: they are widely viewed as default-free. The paper demonstrates that default-free intermediaries who issue credit lines to consumers can resolve the monetary problem and make it possible for the economy to reach a Pareto optimum. We argue that our idealized concept of financial intermediation is a starting point for studying the monetary use of credit. --
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Bibliographic InfoPaper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number 2007-16.
Date of creation: 2007
Date of revision:
Fiat Money; Cash-in-advance; Financial Intermediation;
Other versions of this item:
- Sissoko, Carolyn, 2007. "An Idealized View of Financial Intermediation," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 1(5), pages 1-29.
- G2 - Financial Economics - - Financial Institutions and Services
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-05-19 (All new papers)
- NEP-CBA-2007-05-19 (Central Banking)
- NEP-DGE-2007-05-19 (Dynamic General Equilibrium)
- NEP-MAC-2007-05-19 (Macroeconomics)
- NEP-MON-2007-05-19 (Monetary Economics)
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