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A monetary mechanism for sharing capital: Diamond and Dybvig meet Kiyotaki and Wright

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  • Cavalcanti, Ricardo de Oliveira

Abstract

A model is presented in which banks accept deposits of fiat money and intermediate capital. Alt though theories about the coexistence of money and credit are inherently difficult, the model offers a simple explanation for the dual role of financial institutions: Banks are well monitored, and can credibly allow fiat-money withdraws to whom needs its, thus qualifying to become safe brokers of idle capital. The model shares some features with those of Diamond and Dybvig (1983) and Kiyotaki and Wright (1989).

Suggested Citation

  • Cavalcanti, Ricardo de Oliveira, 2003. "A monetary mechanism for sharing capital: Diamond and Dybvig meet Kiyotaki and Wright," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 476, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    • Handle: RePEc:fgv:epgewp:476
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    Cited by:

    1. Ricardo Cavalcanti & Ed Nosal, 2009. "Some benefits of cyclical monetary policy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 39(2), pages 195-216, May.
    2. David Andolfatto & Ed Nosal, 2003. "A theory of money and banking," Working Papers (Old Series) 0310, Federal Reserve Bank of Cleveland.
    3. Ricardo de O. Cavalcanti & Andrés Erosa & Ted Temzelides, 2005. "Liquidity, Money Creation And Destruction, And The Returns To Banking," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(2), pages 675-706, May.
    4. Monnet, Cyril, 2005. "Counterfeiting and inflation," Working Paper Series 512, European Central Bank.
    5. 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.
    6. Jefferson Bertolai & Ricardo Cavalcanti & Paulo Monteiro, 2014. "Run theorems for low returns and large banks," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 57(2), pages 223-252, October.
    7. J. D. P. Bertolai & R. de O. Cavalcanti & P. K. Monteiro, 2019. "Bank runs with many small banks and mutual guarantees at the terminal stage," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 68(1), pages 125-176, July.

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