Resource title

Money, credit and banking

Resource image

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Resource description

In monetary models in which agents are subject to trading shocks there is typically an ex-post inefficiency in that some agents are holding idle balances while others are cash constrained. This inefficiency creates a role for financial intermediaries, such as banks, who accept nominal deposits and make nominal loans. We show that in general financial intermediation improves the allocation and that the gains in welfare arise from paying interest on deposits and not from relaxing borrowers? liquidity constraints. We also demonstrate that increasing the rate of inflation can be welfare improving when credit rationing occurs.

Resource author

Aleksander Berentsen, Gabriele Camera, Christopher Jude Waller

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/19081

Resource license

Adapt according to the presented license agreement and reference the original author.