Transactions Costs, Inflation, and the Variety of Intermediation Services
A general-equilibrium model with fixed costs of financial intermediation and costs of transacting with intermediaries is constructed. This model is used to show that ignoring fixed costs of in termediation is not innocuous in Tobin-Baumol-type transactions cost models of money demand. Deflation is optimal in spite of the fact that an increase in inflation reduces nominal interest rates and may increase the transactions costs incurred by all groups of economic agents. Changes in reserve requirements have ambiguous effects. The authors obtain novel results due to the fact that the variety of intermediation services is affected by government intervention. Copyright 1987 by Ohio State University Press.
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Volume (Year): 19 (1987)
Issue (Month): 4 (November)
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