Money, credit and banking

By Aleksander Berentsen, Gabriele Camera, Christopher J. Waller. Journal of Economics Theory, 2007

357 citations recorded by the source corpus.

We use a modified version of the Lagos-Wright model to introduce an essential role for banks. Due to preference shocks, agents have excess demand for or supply of money balances. Banks arise to reallocate excess cash by taking deposits from sellers and making loans to buyers. We consider two variations of the model: one in which buyers borrow to finance consumption and another in which they borrow to finance investment. We show that for any positive nominal interest rate, the existence of banks leads to a higher level of steady state output and welfare. We also derive conditions under which borrowers voluntarily repay loans. Finally, we examine how monetary injections into the banking system affect the economy. The effects are very similar to limited particiption models and gives rise to a liquidity effect on nominal interest rates

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/4e75443aaba0b3e4c31d78dde2db2cc8abdcebf9

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Citations in the corpus

Money, Banking, and Monetary Policy (2006, background): “It would be more complicated in this model, however, because it is less straight forward to derive a demand for loans with divisible money; hints as to how to proceed are contained in Berentsen et al. (2005) and Chiu and Meh (2006).”
Housing and Liquidity (2015, methodology): “…in the DM borrow to their limit in the FM, and () = ∙ () + () (1 + ) ¸ + (1− ) [− (1 + ) 0] In this case, the Euler equation for money is = [L (+1) + 1]+1 + (1− ) +1+1 (29) which is very similar to what one sees in related models along the lines of Berentsen, Camera, and Waller (2007).”
A Model of Money and Credit, with Application to the Credit Card Debt Puzzle (2007, unknown): “Notice (2) implies x1 = x1 for all agents, while (3)-(4) imply (m2, b2) is independent of x1 and (m1, b1).”
Inflation and Unemployment in the Long Run (2011, unknown): “In the working paper Berentsen et al. (2008), and on the web at http://www.”
Liquidity: A New Monetarist Perspective (2017, methodology): “In some applications, bankers can abscond with deposits or borrowers can re- nege on debt (Berentsen et al. 2007).”
Should Central Banks Issue Digital Currency? (2019, background): “Comparing equation (19) with the first-order condition for bank deposits in equation (10) shows that a buyer will choose to hold both bank deposits and digital currency only if they offer (15)One could imagine that policy makers might aim to target a particular inflation rate (say, 2%) for reasons t”