Active intermediation in a monetary overlapping generations economy1
This paper establishes that the proï¿½t-seeking activities of private intermediaries can ensure Pareto eï¿½ciency in the standard pure-exchange monetary overlapping generations economy without the need for government monetary or ï¿½scal policy intervention. Moreover, these proï¿½t-seeking activities are shown to rule out all aperiodic and kperiodic cycles for k greater than 2. Contrary to much recent work on intermediation, the proï¿½t opportunities that arise for intermediaries in this context are not due to assumed frictions or asymmetric information. Rather, they are due to the dynamic open-ended structure of the economy, which permits debt roll-over. (C) 1998 Elsevier Science B.V. All rights reserved.
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