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Money, Credit and Banking


Berentsen, Aleksander; Camera, Gabriele; Waller, Christopher (2006). Money, Credit and Banking. Working paper series / Institute for Empirical Research in Economics No. 219, University of Zurich.

Abstract

In monetary models where agents are subject to trading shocksnthere 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 welfarencome 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 benwelfare improving.

Abstract

In monetary models where agents are subject to trading shocksnthere 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 welfarencome 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 benwelfare improving.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Institute for Empirical Research in Economics (former)
Dewey Decimal Classification:330 Economics
Language:English
Date:August 2006
Deposited On:29 Nov 2011 22:47
Last Modified:12 Aug 2017 13:01
Series Name:Working paper series / Institute for Empirical Research in Economics
ISSN:1424-0459
Official URL:http://www.econ.uzh.ch/wp.html

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