Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
957704 | Journal of Economic Theory | 2007 | 25 Pages |
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.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Aleksander Berentsen, Gabriele Camera, Christopher Waller,