The Institutionalization of Savings: A Role for Monetary Policy

Edgar Ghossoub
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Edgar Ghossoub: The University of Texas at San Antonio

No 1, Working Papers from College of Business, University of Texas at San Antonio

Abstract: A signi?cant amount of evidence highlights the important role of ?- nancial intermediaries for economic development and growth. Despite all the bene?ts from ?nancial intermediation, the level of participation in ?nancial institutions varies signi?cantly across countries. In particular, the usage of banks is much lower in less developed economies. Notably, less developed economies share many common characteristics including low-income per person, high average in?ation rates, high degrees of ex- posure to liquidity risk, and high banking fees. I present a monetary growth model with important functions of ?at money and where ?nan- cial intermediaries form endogenously to mitigate various market frictions such as liquidity risk and transactions costs. I demonstrate that all the unfavorable features of less developed economies listed above discourage people from intermediating their savings and hamper ?nancial sector per- formance.

Keywords: Monetary Policy; Financial Intermediation; Liquidity Risk; Economic Development (search for similar items in EconPapers)
JEL-codes: E52 G21 O16 O42 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2009-12-17
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