Review of Economic Studies Vol. 80 No. 2 2013

Banking: A New Monetarist Approach

Chaojun Gu¹; F. Mattesini²; Cyril Monnet³; Rebecca Wright⁴

¹ University of Missouri · ² University of Rome Tor Vergata · ³ University of Bern · ⁴ University of Wisconsin–Madison

Abstract

We develop a model where: (i) banks take deposits and make investments; (ii) their liabilities facilitate third-party transactions. Other models have (i) or (ii), not both, although we argue they are intimately connected: we show that they both emerge from limited commitment. We describe an environment, characterize desirable allocations, and interpret the outcomes as banking arrangements. Banks are essential: without them, the set of feasible allocations is inferior. As a technical contribution, we characterize dynamically optimal credit allocations with frictions, show they involve backloading, and analyse how this interacts with banking. We also confront the theory with economic history.

DOI

10.1093/restud/rds037

Volume

80

Issue

2

Pages

636-662

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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