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Inside-money theory after Diamond and Dybvig

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  • Ricardo de O. Cavalcanti

Abstract

In this article, I discuss the broad influence of Diamond and Dybvig (1983) in the field of money and banking. My review is centered on two aspects of their sharp concept of liquidity when doing mechanism design in a simple economy with a single resource constraint. It calls into question an old approach in macroeconomics of mixing trading games with market institutions. A comparison with the modern money literature reveals that individuals in that model are strongly monitored. A middle ground between that setting and the anonymity setup of matching models of money without credit should lead to new questions about banking regulation and monetary policy.

Suggested Citation

  • Ricardo de O. Cavalcanti, 2010. "Inside-money theory after Diamond and Dybvig," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 96(1Q), pages 59-82.
    • Handle: RePEc:fip:fedreq:y:2010:i:1q:p:59-82:n:v.96no.1
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    References listed on IDEAS

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    Cited by:

    1. Shakina, Ekaterina & Angerer, Martin, 2018. "Coordination and communication during bank runs," Journal of Behavioral and Experimental Finance, Elsevier, vol. 20(C), pages 115-130.
    2. R. de O. Cavalcanti & P. K. Monteiro, 2016. "Enriching information to prevent bank runs," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 62(3), pages 477-494, August.
    3. J. D. P. Bertolai & R. de O. Cavalcanti, 2011. "High interest rates: the golden rule for bank stability in the Diamond-Dybvig model," Working Papers 14-2011, Universidade de São Paulo, Faculdade de Economia, Administração e Contabilidade de Ribeirão Preto.

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