An Idealized View of Financial Intermediation

Carolyn Sissoko ()

Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), 2007, vol. 1, No 2007-5, 29 pages

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.

Keywords: Fiat Money; Cash-in-advance; Financial Intermediation (search for similar items in EconPapers)
JEL-codes: E5 G2 (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (1)

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Working Paper: An Idealized View of Financial Intermediation (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifweej:5740

DOI: 10.5018/economics-ejournal.ja.2007-5

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