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Active intermediation in a monetary overlapping generations economy1

Listed author(s):
  • Pingle, Mark
  • Tesfatsion, Leigh

This paper establishes that the pro�t-seeking activities of private intermediaries can ensure Pareto e�ciency in the standard pure-exchange monetary overlapping generations economy without the need for government monetary or �scal policy intervention. Moreover, these pro�t-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 pro�t 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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File URL: http://www.sciencedirect.com/science/article/pii/S0165-1889(97)00105-X
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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 22 (1998)
Issue (Month): 10 (August)
Pages: 1543-1574

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Handle: RePEc:eee:dyncon:v:22:y:1998:i:10:p:1543-1574
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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  1. Mark Gertler, 1988. "Financial structure and aggregate economic activity: an overview," Proceedings, Federal Reserve Bank of Cleveland, pages 559-596.
  2. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
  3. Grandmont, Jean-Michel & Laroque, Guy, 1973. "Money in the pure consumption loan model," Journal of Economic Theory, Elsevier, vol. 6(4), pages 382-395, August.
  4. Shell, Karl, 1971. "Notes on the Economics of Infinity," Journal of Political Economy, University of Chicago Press, vol. 79(5), pages 1002-1011, Sept.-Oct.
  5. Gale, David, 1973. "Pure exchange equilibrium of dynamic economic models," Journal of Economic Theory, Elsevier, vol. 6(1), pages 12-36, February.
  6. Bhattacharya Sudipto & Thakor Anjan V., 1993. "Contemporary Banking Theory," Journal of Financial Intermediation, Elsevier, vol. 3(1), pages 2-50, October.
  7. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467-467.
  8. Grandmont, Jean-Michel, 1985. "On Endogenous Competitive Business Cycles," Econometrica, Econometric Society, vol. 53(5), pages 995-1045, September.
  9. Balasko, Yves & Shell, Karl, 1981. "The overlapping-generations model. III. The case of log-linear utility functions," Journal of Economic Theory, Elsevier, vol. 24(1), pages 143-152, February.
  10. Balasko, Yves & Shell, Karl, 1980. "The overlapping-generations model, I: The case of pure exchange without money," Journal of Economic Theory, Elsevier, vol. 23(3), pages 281-306, December.
  11. Abba P. Lerner, 1959. "Consumption-Loan Interest and Money," Journal of Political Economy, University of Chicago Press, vol. 67, pages 512-512.
  12. Hannan, Timothy H & Berger, Allen N, 1991. "The Rigidity of Prices: Evidence from the Banking Industry," American Economic Review, American Economic Association, vol. 81(4), pages 938-945, September.
  13. Pingle, Mark & Tesfatsion, Leigh, 1991. "Overlapping generations, intermediation, and the First Welfare Theorem," Journal of Economic Behavior & Organization, Elsevier, vol. 15(3), pages 325-345, May.
  14. Balasko, Yves & Shell, Karl, 1981. "The overlapping-generations model. II. The case of pure exchange with money," Journal of Economic Theory, Elsevier, vol. 24(1), pages 112-142, February.
  15. Leigh TESFATSION, 1995. "How Economists Can Get Alife," Economic Report 37, Iowa State University Department of Economics.
  16. Abba P. Lerner, 1959. "Consumption-Loan Interest and Money: Rejoinder," Journal of Political Economy, University of Chicago Press, vol. 67, pages 523-523.
  17. Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November.
  18. Dean F. Amel & J. Nellie Liang, 1992. "A dynamic model of entry and performance in the U.S. banking industry," Finance and Economics Discussion Series 210, Board of Governors of the Federal Reserve System (U.S.).
  19. David Cass & Menahem E. Yaari, 1966. "A Re-examination of the Pure Consumption Loans Model," Journal of Political Economy, University of Chicago Press, vol. 74, pages 353-353.
  20. Fama, Eugene F., 1985. "What's different about banks?," Journal of Monetary Economics, Elsevier, vol. 15(1), pages 29-39, January.
  21. Bryant, John, 1981. "Bank Collapse and Depression," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 13(4), pages 454-464, November.
  22. Williamson, Stephen D., 1992. "Laissez-faire banking and circulating media of exchange," Journal of Financial Intermediation, Elsevier, vol. 2(2), pages 134-167, June.
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