On the Money Creation Approach to Banking

Hans Gersbach and Salomon Faure

No 11368, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study today's two-tier money creation and destruction by commercial banks via deposit/loan creation to firms and by central banks via deposit/loan creation to commercial banks. In a simple general equilibrium setting, we show that symmetric equilibria yield the first-best level of money creation and lending when prices are flexible, regardless of monetary policy and capital regulation. When prices are rigid, we identify the circumstances in which money creation is excessive or breaks down and the ones in which an adequate combination of monetary policy and capital regulation can restore efficiency. Finally, we provide a series of extensions and generalizations of the results.

Keywords: Money; creation; -; bank; deposits; -; capital; regulation; -; zero; lower; bound; -; monetary; policy; -; price; rigidities (search for similar items in EconPapers)
JEL-codes: D50 E4 E5 G21 (search for similar items in EconPapers)
Date: 2016-06
New Economics Papers: this item is included in nep-ban, nep-cba, nep-ger, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP11368 (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:
Journal Article: On the money creation approach to banking (2021)
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:11368

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP11368

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 ().