The I Theory of Money

Markus Brunnermeier and Yuliy Sannikov
Additional contact information
Yuliy Sannikov: Princeton University

Research Papers from Stanford University, Graduate School of Business

Abstract: A theory of money needs a proper place for financial intermediaries. Intermediaries create inside money and their ability to take risks determines the money multiplier. In downturns, intermediaries shrink their lending activity and fire-sell assets. Moreover, they create less inside money, exactly at a time when the demand for money rises. The resulting Fisher disinflation hurts intermediaries and other borrowers. The initial shock is amplified, volatility spikes and risk premia rise. Monetary policy is redistributive. An accommodative monetary policy, focused on the assets held by constrained agents, recapitalizes balance sheet-impaired sectors in downturns and hence mitigates these destabilizing adverse feedback effects. However, monetary policy also creates moral hazard in the sense that it cannot provide insurance and control risk-taking separately. Hence, macroprudential policy that controls leverage attains higher welfare than monetary policy alone.

Date: 2016-01
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
References: Add references at CitEc
Citations: View citations in EconPapers (52)

Downloads: (external link)
http://www.gsb.stanford.edu/gsb-cmis/gsb-cmis-download-auth/417966
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.gsb.stanford.edu/gsb-cmis/gsb-cmis-download-auth/417966 [301 Moved Permanently]--> https://www.gsb.stanford.edu/gsb-cmis/gsb-cmis-download-auth/417966)

Related works:
Working Paper: The I Theory of Money (2019)
Working Paper: The I Theory of Money (2016)
Working Paper: The I Theory of Money (2016)
Working Paper: The I-Theory of Money (2013)
Working Paper: The I Theory of Money (2012)
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:ecl:stabus:3431

Access Statistics for this paper

More papers in Research Papers from Stanford University, Graduate School of Business Contact information at EDIRC.
Bibliographic data for series maintained by ().