Money, Banking, and Financial Markets

Andolfatto, David and Berentsen, Aleksander and Martin, Fernando M.. (2020) Money, Banking, and Financial Markets. The Review of Economic Studies, 87 (5). pp. 2049-2086.

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The fact that money, banking, and financial markets interact in important ways seems self-evident. The theoretical nature of this interaction, however, has not been fully explored. To this end, we integrate the Diamond (1997, Journal of Political Economy 105 , 928-956) model of banking and financial markets with the Lagos and Wright (2005, Journal of Political Economy 113 , 463-484) dynamic model of monetary exchange-a union that bears a framework in which fractional reserve banks emerge in equilibrium, where bank assets are funded with liabilities made demandable in government money, where the terms of bank deposit contracts are affected by the liquidity insurance available in financial markets, where banks are subject to runs, and where a central bank has a meaningful role to play, both in terms of inflation policy and as a lender of last resort. Among other things, the model provides a rationale for nominal deposit contracts combined with a central bank lender-of-last-resort facility to promote efficient liquidity insurance and a panic-free banking system.
Faculties and Departments:06 Faculty of Business and Economics > Departement Wirtschaftswissenschaften > Professuren Wirtschaftswissenschaften > Wirtschaftstheorie (Berentsen)
UniBasel Contributors:Berentsen, Aleksander
Item Type:Article, refereed
Article Subtype:Research Article
Publisher:Review of Economic Studies
Note:Publication type according to Uni Basel Research Database: Journal article
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Last Modified:09 Feb 2021 11:21
Deposited On:09 Feb 2021 11:21

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