Money, Credit and Banking

Aleksander Berentsen (), Gabriele Camera () and Christopher Waller ()

No CESifo Working Paper No. 1617, CESifo Working Paper Series from CESifo Group Munich

Abstract: In monetary models in which agents are subject to trading shocks there is typically an ex-post inefficiency in that some agents are holding idle balances while others are cash constrained. This inefficiency creates a role for financial intermediaries, such as banks, who accept nominal deposits and make nominal loans. We show that in general financial intermediation improves the allocation and that the gains in welfare arise from paying interest on deposits and not from relaxing borrowers’ liquidity constraints. We also demonstrate that increasing the rate of inflation can be welfare improving when credit rationing occurs.

Keywords: money; credit; rationing; banking (search for similar items in EconPapers)
JEL-codes: D90 E40 E50 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-fmk, nep-mac and nep-mon
Date: 2005
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Related works:
Working Paper: Money, Credit, and Banking (2004)
Working Paper: Money, Credit and Banking
Journal Article: Money, credit and banking (2007)
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