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On the Optimality of Reserve Requirements

Listed author(s):
  • Cothren, Richard D
  • Waud, Roger N

A simple economy is modeled to mimic certain basic characteristics of a monetary economy with agents who trade with one another. The analysis focuses on the way bank reserves affect the return and risk associated with bank investments and how this return and risk affects the extent of trading among agents--that is, the level of economic activity. It is shown how the Nash equilibrium in such a free banking system may yield a suboptimal outcome and how imposition of a reserve requirement can be Pareto improving. Copyright 1994 by Ohio State University Press.

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File URL: http://links.jstor.org/sici?sici=0022-2879%28199411%2926%3A4%3C827%3AOTOORR%3E2.0.CO%3B2-G&origin=bc
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Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 26 (1994)
Issue (Month): 4 (November)
Pages: 827-838

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Handle: RePEc:mcb:jmoncb:v:26:y:1994:i:4:p:827-38
Contact details of provider: Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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  1. Polemarchakis, H. M. & Weiss, L., 1977. "On the desirability of a "totally random" monetary policy," Journal of Economic Theory, Elsevier, vol. 15(2), pages 345-350, August.
  2. King, Robert G., 1983. "On the economics of private money," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 127-158.
  3. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
  4. Fama, Eugene F., 1980. "Banking in the theory of finance," Journal of Monetary Economics, Elsevier, vol. 6(1), pages 39-57, January.
  5. Lucas, Robert Jr., 1977. "Reply to muench and polemarchakis and weiss," Journal of Economic Theory, Elsevier, vol. 15(2), pages 351-352, August.
  6. Rolnick, Arthur J & Weber, Warren E, 1983. "New Evidence on the Free Banking Era," American Economic Review, American Economic Association, vol. 73(5), pages 1080-1091, December.
  7. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
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