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Private Money and Equilibrium Liquidity

Author

Listed:
  • Roberto Robatto

    (University Wisconsin Madison)

  • Pierpaolo Benigno

    (LUISS Guido Carli)

Abstract

Can creation of private money by financial intermediaries fulfill the liquidity needs of the economy? The answer is no if the market is run only by forces of free competition. Multiple equilibria are possible: equilibria with complete satiation of liquidity and absence of default coexists with ones characterized by shortages and partial default. In this framework, capital requirements, distortions to demand or supply of private money, and the role of public liquidity are investigated.

Suggested Citation

  • Roberto Robatto & Pierpaolo Benigno, 2016. "Private Money and Equilibrium Liquidity," 2016 Meeting Papers 690, Society for Economic Dynamics.
  • Handle: RePEc:red:sed016:690
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    References listed on IDEAS

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