Financial stability, monetary policy and the payment intermediary share

Moritz Lenel, Martin Schneider and Monika Piazzesi
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Moritz Lenel: University of Chicago
Martin Schneider: Stanford University
Monika Piazzesi: Stanford University

No 1257, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: The payment intermediary share is the share of fixed income claims held by financial intermediaries with money-like liabilities. It is higher in times of higher risk premia, such as during the 1970s and in recent recessions. This paper proposes a model of a modern monetary economy that accounts for the valuation of fixed income claims as well as their allocation inside vs outside the payment intermediaries. While all assets are valued for their risk and return properties, those held inside payment intermediaries are also valued as collateral that backs inside money. The payment-intermediary share depends on the transactions demand for inside money as well as portfolio responses to uncertainty shocks. It determines the quantitative impact of monetary policy and macro-prudential regulation on asset prices.

Date: 2018
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-mac, nep-mon and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed018:1257

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