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Inside Money as a Source of Investment Finance

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  • Hartley, Peter R

Abstract

Households demand bank deposits for the liquidity services such assets provide. Higher yielding assets usually are available to finance future consumption. Nevertheless, the demand for bank liabilities enables banks to finance investment. One might therefore expect more capital in an economy utilizing banks. The author shows that, when low wealth households cannot borrow, bank lending increases the capital stock and reduces equilibrium interest rates, while making the real equilibrium more sensitive to shifts in the demand for inside money. When households can borrow, however, bank lending is absorbed by low wealth households and banks have few effects on the real equilibrium.

Suggested Citation

  • Hartley, Peter R, 1998. "Inside Money as a Source of Investment Finance," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(2), pages 193-217, May.
  • Handle: RePEc:mcb:jmoncb:v:30:y:1998:i:2:p:193-217
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    Cited by:

    1. Luca Guerrieri & Matteo Iacoviello & Raoul Minetti, 2013. "Banks, Sovereign Debt, and the International Transmission of Business Cycles," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 9(1), pages 181-213.
    2. Stracca, Livio, 2007. "Should we take inside money seriously?," Working Paper Series 841, European Central Bank.
    3. Stracca, Livio, 2013. "Inside Money In General Equilibrium: Does It Matter For Monetary Policy?," Macroeconomic Dynamics, Cambridge University Press, vol. 17(03), pages 563-590, April.

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