A monetary mechanism for sharing capital: Diamond and Dybvig meet Kiyotaki and Wright

Ricardo Cavalcanti

Economic Theory, 2004, vol. 24, issue 4, 769-788

Abstract: A model is presented in which banks update public records, accept deposits of fiat money and intermediate capital. I show that inside money is more liquid than outside money, increasing the turnover rates of idle capital. The model offers a simple explanation for the dual role of financial institutions: Banks are monitored and can issue nominal assets upon request, which helps them to transfer capital in sufficiently high rates and to also become intermediaries. The model shares some features with those of Diamond and Dybvig [5], and Kiyotaki and Wright [7]. Copyright Springer-Verlag Berlin/Heidelberg 2004

Keywords: Inside money; Capital intermediation; Bank deposits; Liquidity; Matching model. (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (8)

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DOI: 10.1007/s00199-004-0493-5

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