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Full-Text Articles in Social and Behavioral Sciences
Banking In A Matching Model Of Money And Capital, Valerie R. Bencivenga, Gabriele Camera
Banking In A Matching Model Of Money And Capital, Valerie R. Bencivenga, Gabriele Camera
Economics Faculty Articles and Research
We introduce banks in a model of money and capital with trading frictions. Banks offer demand deposit contracts and hold primary assets to maximize depositors’ utility. If banks’ operating costs are small, banks reallocate liquidity eliminating idle balances and improving the allocation. At moderate costs, idle balances are reduced but not eliminated. At larger costs, banks are redundant. A central bank policy of paying interest on bank reserves can reverse inflation’s distortionary effects, and increase welfare, but only when costs are small. The threshold levels of banks’ costs increase with inflation, suggesting inflation and banks’ utilization are positively associated.
Another Example Of A Credit System That Coexists With Money, Gabriele Camera, Yiting Li
Another Example Of A Credit System That Coexists With Money, Gabriele Camera, Yiting Li
Economics Faculty Articles and Research
We study an economy in which exchange occurs pairwise, there is no commitment, and anonymous agents choose between random monetary trade or deterministic credit trade. To accomplish the latter, agents can exploit a costly technology that allows limited recordkeeping and enforcement. An equilibrium with money and credit is shown to exist if the cost of using the technology is sufficiently small. Anonymity, record-keeping and enforcement limitations also permit some incidence of default, in equilibrium.
Money, Credit, And Banking, Aleksander Berentsen, Gabriele Camera, Christopher Waller
Money, Credit, And Banking, Aleksander Berentsen, Gabriele Camera, Christopher Waller
Economics Faculty Articles and Research
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.