Private money and reserve management in a random matching model

Ricardo Cavalcanti, Andres Erosa () and Ted Temzelides ()

No 97-24, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: The authors introduce an element of centralization in a random matching model of money that allows for private liabilities to circulate as media of exchange. Some agents, which the authors identify as banks, are endowed with the technology to issue notes and to record-keep reserves with a central clearinghouse, which they call the treasury. The liabilities are redeemed according to a stochastic process that depends on the endogenous trades. The treasury removes the banking technology from banks that are not able to meet the redemptions in a given period. This, together with the market incompleteness, gives rise to a reserve management problem for the issuing banks. The authors demonstrate that "sufficiently patient" banks will concentrate on improving their reserve position instead of pursuing additional issue. The model provides a first attempt to reconcile limited note issue with optimizing behavior by banks during the National Banking Era.

Keywords: Money; theory (search for similar items in EconPapers)
Date: 1997
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Related works:
Journal Article: Private Money and Reserve Management in a Random-Matching Model (1999)
Working Paper: Private money and reserve management in a random-matching model (1999)
Working Paper: PRIVATE MONEY AND RESERVE MANAGEMENT IN A RANDOM MATCHING MODEL (1998)
Working Paper: Private Money and Reserve Management in a Random Matching Model (1998)
Working Paper: Private Money and Reserve Management in a Random Matching Model (1997)
Working Paper: Private Money and Reserve Management in a Random Matching Model (1997)
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