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Banks and markets in a monetary economy

  • Antinolfi, Gaetano
  • Kawamura, Enrique

Modern financial sectors consist of banks, asset markets and a central bank. This paper builds a model where these institutions provide different financial services, and their interaction supports efficient allocations. When one institution is missing equilibria are, by construction, inefficient. The paper analyzes how interest rates and asset prices depend on the structure of the financial sector and characterizes the central bank policy that supports efficient allocations. The analysis relies on the difference between liquidity and real shocks, and relates the notion of liquidity used in this paper to the one adopted in other studies.

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 55 (2008)
Issue (Month): 2 (March)
Pages: 321-334

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Handle: RePEc:eee:moneco:v:55:y:2008:i:2:p:321-334
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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  1. Champ, B. & Smith, B.D., 1991. "Currency Elasticity and Banking Panics: theory and Evidence," University of Western Ontario, The Centre for the Study of International Economic Relations Working Papers 9109, University of Western Ontario, The Centre for the Study of International Economic Relations.
  2. Gorton, Gary & Winton, Andrew, 2003. "Financial intermediation," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 8, pages 431-552 Elsevier.
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  5. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
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