An Idealized View of Financial Intermediation

29 Pages Posted: 6 Dec 2010

See all articles by Carolyn Sissoko

Carolyn Sissoko

University of the West of England (UWE)

Multiple version iconThere are 2 versions of this paper

Date Written: 2007

Abstract

We consider an environment where the general equilibrium assumption that every agent buys and sells simultaneously is relaxed. We show that fiat money can implement a Pareto optimal allocation 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 deposit accounts with credit lines to consumers can resolve the monetary problem and make it possible for the economy to reach a Pareto optimum.

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

JEL Classification: E5, G2

Suggested Citation

Sissoko, Carolyn, An Idealized View of Financial Intermediation (2007). Economics: The Open-Access, Open-Assessment E-Journal, Vol. 1, 2007-5, Available at SSRN: https://ssrn.com/abstract=1719954 or http://dx.doi.org/10.5018/economics-ejournal.ja.2007-5

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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