Financial market participation, financial intermediation, and monetary policy

Edgar A. Ghossoub

Economics Letters, 2012, vol. 117, issue 1, 127-130

Abstract: It is not uncommon for the Friedman rule to be optimal in neoclassical models with money. Notably, previous studies also find that financial intermediation is not welfare improving when money is costless to hold. This paper departs from previous studies by highlighting the importance of participation costs in financial markets for the participation in financial intermediation and monetary policy. As in previous work, the Friedman rule is optimal. However, I demonstrate that the welfare gains from disinflation are much higher when savings are intermediated if direct participation costs in financial markets are significant. Consequently, financial intermediation can still be optimal at the Friedman rule.

Keywords: Monetary policy; Financial intermediation; Friedman rule (search for similar items in EconPapers)
JEL-codes: E52 G21 O16 O42 (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:117:y:2012:i:1:p:127-130

DOI: 10.1016/j.econlet.2012.04.090

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