We develop a model of financial deepening, based on the distinction between limited bilateral commitment and limited multilateral commitment. We explore the effects of secular changes in financial depth on investment and output; on intermediation and interest rates; on the long-run velocities of circulation of different monetary instruments, and the use of outside money; on the patterns of saving and trade in paper. Three stages of financial development are identified. (JEL: E41, E43, E44, E51, O16, O42) Copyright (c) 2005 The European Economic Association.
Volume (Year): 3 (2005)
Issue (Month): 2-3 (04/05)
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