Money, banking and financial markets

David Andolfatto (), Aleksander Berentsen and Fernando Martin

No 259, ECON - Working Papers from Department of Economics - University of Zurich

Abstract: The fact that money, banking, and financial markets interact in important ways seems self-evident. The theoretical nature of this interaction, however, has not been fully explored. To this end, we integrate the Diamond (1997) model of banking and financial markets with the Lagos and Wright (2005) dynamic model of monetary exchange – a union that bears a framework in which fractional reserve banks emerge in equilibrium, where bank assets are funded with liabilities made demandable for government money, where the terms of bank deposit contracts are constrained by the liquidity insurance available in financial markets, where banks are subject to runs, and where a central bank has a meaningful role to play, both in terms of inflation policy and as a lender of last resort. The model provides a rationale for nominal deposit contracts combined with a central bank lender-of-last-resort facility to promote efficient liquidity insurance and a panic-free banking system.

Keywords: Money; banking; financial markets; monetary policy (search for similar items in EconPapers)
JEL-codes: D02 D53 E50 E60 G21 (search for similar items in EconPapers)
Date: 2017-08
New Economics Papers: this item is included in nep-ban, nep-dge, nep-ias, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/192882/1/econwp259.pdf (application/pdf)

Related works:
Journal Article: Money, Banking, and Financial Markets (2020)
Working Paper: Money, Banking and Financial Markets (2017)
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:zur:econwp:259

Access Statistics for this paper

More papers in ECON - Working Papers from Department of Economics - University of Zurich Contact information at EDIRC.
Bibliographic data for series maintained by Severin Oswald ().