Private Money Creation and Equilibrium Liquidity

Pierpaolo Benigno and Roberto Robatto

No 11242, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study the joint supply of public and private liquidity using a simple macroeconomic model. In a frictionless, competitive financial market, private intermediaries create riskless securities (safe assets) and the economy achieves the fi rst best. If instead equity is more costly than debt, a pecuniary externality arises, fi nancial intermediaries supply risky securities, and the economy is vulnerable to liquidity crunches. We use our framework to revisit, in the context of the modern financial system, some classic proposals on liquidity supply (real-bills doctrine, free banking, and narrow banking), comparing them with recent interventions (capital requirements and bailouts).

Date: 2016-04
New Economics Papers: this item is included in nep-mon and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP11242 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:11242

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP11242

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().