An Idealized View of Financial Intermediation

Carolyn Sissoko ()

Occidental Economics Working Papers from Occidental College, Department of Economics

Abstract: We consider an environment where the general equilibrium assumption that every agent buys and sells simultaneously is relaxed. We show that fiat money can implement a Pareto optimal allocation only if taxes are type-specific. We then consider intermediated money by assuming that financial intermediaries whose liabilities circulate as money have an important identifying characteristic: they are widely viewed as default-free. The paper demonstrates that default-free intermediaries who issue deposit accounts with credit lines to consumers can resolve the monetary problem and make it possible for the economy to reach a Pareto optimum.

JEL-codes: E5 (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: 2006-03, Revised 2007-06
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http://departments.oxy.edu/economics/papers/money2.pdf Revised version, 2007 (application/pdf)

Related works:
Working Paper: An Idealized View of Financial Intermediation (2007)
Journal Article: An Idealized View of Financial Intermediation (2007)
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Persistent link: http://EconPapers.repec.org/RePEc:occ:wpaper:6

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