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Active Intermediation in a Monetary Overlapping Generations Economy

  • Pingle, Mark
  • Tesfatsion, Leigh S.

This paper establishes that the profit-seeking activities of private intermediaries can ensure Pareto efficiency in the standard pure-exchange monetary overlapping generations economy without the need for government monetary or fiscal policy intervention. Moreover, these profit-seeking activities are shown to rule out all aperiodic and k-periodic cycles for k greater than 2. Contrary to much recent work on intermediation, the profit opportunities that arise for intermediaries in this context are not due to assumed frictions or asymmetric information. Rather, they are due to the dynamic open-ended structure of the economy, which permits debt roll-over. Annotated pointers to related work can be accessed here: http://www.econ.iastate.edu/tesfatsi/dehome.htm

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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 1954.

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Date of creation: 01 Jan 1998
Date of revision:
Publication status: Published in Journal of Economic Dynamics and Control 1998, vol. 22, pp. 1543-1574
Handle: RePEc:isu:genres:1954
Contact details of provider: Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
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  1. Fama, Eugene F., 1985. "What's different about banks?," Journal of Monetary Economics, Elsevier, vol. 15(1), pages 29-39, January.
  2. Gale, David, 1973. "Pure exchange equilibrium of dynamic economic models," Journal of Economic Theory, Elsevier, vol. 6(1), pages 12-36, February.
  3. repec:cup:cbooks:9781107003491 is not listed on IDEAS
  4. Kane, Edward J, 1989. "The High Cost of Incompletely Funding the FSLIC Shortage of Explicit Capital," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 31-47, Fall.
  5. Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November.
  6. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
  7. David Cass & Menahem E. Yaari, 1965. "A Re-Examination of the Pure Consumption Loans Model," Cowles Foundation Discussion Papers 195, Cowles Foundation for Research in Economics, Yale University.
  8. Grandmont Jean-michel, 1983. "On endogenous competitive business cycles," CEPREMAP Working Papers (Couverture Orange) 8316, CEPREMAP.
  9. Grandmont, Jean-Michel & Laroque, Guy, 1973. "Money in the pure consumption loan model," Journal of Economic Theory, Elsevier, vol. 6(4), pages 382-395, August.
  10. Williamson, Stephen D., 1992. "Laissez-faire banking and circulating media of exchange," Journal of Financial Intermediation, Elsevier, vol. 2(2), pages 134-167, June.
  11. Pingle, Mark & Tesfatsion, Leigh, 1991. "Overlapping generations, intermediation, and the First Welfare Theorem," Journal of Economic Behavior & Organization, Elsevier, vol. 15(3), pages 325-345, May.
  12. Balasko, Yves & Shell, Karl, 1980. "The overlapping-generations model, I: The case of pure exchange without money," Journal of Economic Theory, Elsevier, vol. 23(3), pages 281-306, December.
  13. Bryant, John, 1981. "Bank Collapse and Depression," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 13(4), pages 454-64, November.
  14. Balasko, Yves & Shell, Karl, 1981. "The overlapping-generations model. II. The case of pure exchange with money," Journal of Economic Theory, Elsevier, vol. 24(1), pages 112-142, February.
  15. Mark L. Gertler, 1988. "Financial Structure and Aggregate Economic Activity: An Overview," NBER Working Papers 2559, National Bureau of Economic Research, Inc.
  16. Hannan, Timothy H & Berger, Allen N, 1991. "The Rigidity of Prices: Evidence from the Banking Industry," American Economic Review, American Economic Association, vol. 81(4), pages 938-45, September.
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