Document Type
Article
Publication Date
2007
Abstract
In monetary models where agents are subject to trading shocks there is typically an ex-post inefficiency since some agents are holding idle balances while others are cash constrained. This problem creates a role for financial intermediaries, such as banks, who accept nominal deposits and make nominal loans. In general, financial intermediation improves the allocation. The gains in welfare come from the payment of interest on deposits and not from relaxing borrowers’ liquidity constraints. We also demonstrate that when credit rationing occurs increasing the rate of inflation can be welfare improving.
Recommended Citation
Berentsen, A., G. Camera and C. Waller (2007). Money, credit, and banking. Journal of Economic Theory 135(1), 171-195. doi: 10.1016/j.jet.2006.03.016
Peer Reviewed
1
Copyright
Elsevier
Creative Commons License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.
Comments
NOTICE: this is the author’s version of a work that was accepted for publication in Journal of Economic Theory. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Economic Theory, volume 135, issue 1 (2007). DOI: 10.1016/j.jet.2006.03.016
The Creative Commons license below applies only to this version of the article.