An Idealized View of Financial Intermediation

18 Pages Posted: 29 Nov 2010

See all articles by Carolyn Sissoko

Carolyn Sissoko

University of the West of England (UWE)

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Date Written: 2007

Abstract

Using the monetary model developed in Sissoko (2007), where the general equilibrium assumption that every agent buys and sells simultaneously is relaxed, we observe that in this environment fiat money can implement a Pareto optimum 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 credit lines to consumers can resolve the monetary problem and make it possible for the economy to reach a Pareto optimum. We argue that our idealized concept of financial intermediation is a starting point for studying the monetary use of credit.

Keywords: Fiat Money, Cash-in-advance, Financial Intermediation

JEL Classification: G2, E5

Suggested Citation

Sissoko, Carolyn, An Idealized View of Financial Intermediation (2007). Economics Discussion Paper No. 2007-16, Available at SSRN: https://ssrn.com/abstract=1716356 or http://dx.doi.org/10.2139/ssrn.1716356

Carolyn Sissoko (Contact Author)

University of the West of England (UWE) ( email )

Blackberry Hill Bristol
Bristol, Avon BS16 1QY
United Kingdom

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