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Money, Intermediation, and Banking

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  • Andolfatto, David

Abstract

The business of money creation is conceptually distinct from that of intermediation. Yet, these two activities are frequently---but not always---combined together in the form of a banking system. We develop a simple model to examine the question: When is banking essential? There is a role for money due to a lack of record-keeping and a role for intermediation due to the existence of private information: both money and intermediation are essential. When monitoring costs associated with intermediation are sufficiently low, the two activities can be separated from one another. However, when monitoring costs are sufficiently high, a banking system that combines these two activities is essential.

Suggested Citation

  • Andolfatto, David, 2008. "Money, Intermediation, and Banking," MPRA Paper 7321, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:7321
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    References listed on IDEAS

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    Cited by:

    1. Cyril Monnet & Daniel R. Sanches, 2015. "Private Money and Banking Regulation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(6), pages 1031-1062, September.
    2. Daniel Sanches, 2016. "On the Inherent Instability of Private Money," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 20, pages 198-214, April.
    3. Hasman, Augusto & Samartín, Margarita & van Bommel, Jos, 2014. "Financial intermediation in an overlapping generations model with transaction costs," Journal of Economic Dynamics and Control, Elsevier, vol. 45(C), pages 111-125.
    4. Daniel R. Sanches, 2013. "Banking crises and the role of bank coalitions," Working Papers 13-28, Federal Reserve Bank of Philadelphia, revised 04 Feb 2014.
    5. Sanches, Daniel, 2013. "On the welfare properties of fractional reserve banking," Working Papers 13-32, Federal Reserve Bank of Philadelphia, revised 04 Feb 2013.
    6. David Andolfatto, 2005. "On the Coexistence of Money and Bonds," 2005 Meeting Papers 9, Society for Economic Dynamics.

    More about this item

    Keywords

    Money; Record-keeping; Private Information; Delegated Monitoring;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

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