Inside-Money Theory after Diamond and Dybvig

24 Pages Posted: 16 Dec 2012

See all articles by Ricardo de O. Cavalcanti

Ricardo de O. Cavalcanti

Pennsylvania State University, College of the Liberal Arts - Department of Economic

Date Written: 2010

Abstract

In this article, I discuss the broad influence of Diamond and Dybvig (1983) in the field of money and banking. My review is centered on two aspects of their sharp concept of liquidity when doing mechanism design in a simple economy with a single resource constraint. It calls into question an old approach in macroeconomics of mixing trading games with market institutions. A comparison with the modern money literature reveals that individuals in that model are strongly monitored. A middle ground between that setting and the anonymity setup of matching models of money without credit should lead to new questions about banking regulation and monetary policy.

Suggested Citation

Cavalcanti, Ricardo de O., Inside-Money Theory after Diamond and Dybvig (2010). FRB Richmond Economic Quarterly, vol. 96, no. 1, First Quarter 2010, pp. 59-82, Available at SSRN: https://ssrn.com/abstract=2189120

Ricardo de O. Cavalcanti (Contact Author)

Pennsylvania State University, College of the Liberal Arts - Department of Economic ( email )

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University Park, PA 16802-3306
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