Private liquidity and banking regulation
The authors show that the regulation of bank lending practices is necessary for the optimal provision of private liquidity. In an environment in which bankers cannot commit to repay their creditors, the authors show that neither an unregulated banking system nor narrow banking can provide the socially efficient amount of liquidity. If the bankers provided such an amount, then they would prefer to default on their liabilities. The authors show that a regulation that increases the value of the banking sector’s assets (e.g., by limiting competition in bank lending) will mitigate the commitment problem. If the value of the bank charter is made sufficiently large, then it is possible to implement an efficient allocation. Thus, the creation of a valuable bank charter is necessary for efficiency
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- Ricardo de O. Cavalcanti & Andres Erosa & Ted Temzelides, 1999.
"Private money and reserve management in a random-matching model,"
Discussion Paper / Institute for Empirical Macroeconomics
128, Federal Reserve Bank of Minneapolis.
- Ricardo de O. Cavalcanti & Andres Erosa & Ted Temzelides, 1999. "Private Money and Reserve Management in a Random-Matching Model," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 929-945, October.
- Cavalcanti, Ricardo & Erosa, Andres & Temzelides, Ted, . "Private Money and Reserve Management in a Random Matching Model," Working Papers 97-17, University of Iowa, Department of Economics, revised Sep 1997.
- Cavalcanti, R. & Erosa, A. & Temzelides, T., 1997. "Private Money and Reserve Management in a Random Matching Model," UWO Department of Economics Working Papers 9715, University of Western Ontario, Department of Economics.
- Ricardo Cavalcanti & Andres Erosa & Ted Temzelides, 1998. "Private Money and Reserve Management in a Random Matching Model," Macroeconomics 9803008, EconWPA.
- Ricardo de O. Cavalcanti & Andres Erosa & Theodosios Temzelides, 1997. "Private money and reserve management in a random matching model," Working Papers 97-24, Federal Reserve Bank of Philadelphia.
- Ricardo de O. Cavalcanti & Andres Erosa, 1998. "Private Money And Reserve Management In A Random Matching Model," Macroeconomics 9802010, EconWPA.
- Allen N. Berger & Christa H. S. Bouwman, 2009. "Bank Liquidity Creation," Review of Financial Studies, Society for Financial Studies, vol. 22(9), pages 3779-3837, September.
- Holmström, Bengt, 2013.
"Inside and Outside Liquidity,"
MIT Press Books,
The MIT Press,
edition 1, volume 1, number 0262518536, March.
- Cavalcanti, Ricardo de O & Wallace, Neil, 1999.
"Inside and Outside Money as Alternative Media of Exchange,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 31(3), pages 443-57, August.
- Ricardo de O. Cavalcanti & Neil Wallace, 1999. "Inside and outside money as alternative media of exchange," Proceedings, Federal Reserve Bank of Cleveland, pages 443-468.
- Shouyong Shi, 1997.
"A Divisible Search Model of Fiat Money,"
Econometric Society, vol. 65(1), pages 75-102, January.
- Azariadis, Costas & Bullard, James & Smith, Bruce D., 2001.
"Private and Public Circulating Liabilities,"
Journal of Economic Theory,
Elsevier, vol. 99(1-2), pages 59-116, July.
- Gorton, Gary B., 2010. "Slapped by the Invisible Hand: The Panic of 2007," OUP Catalogue, Oxford University Press, number 9780199734153, December.
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