Loanable Funds vs Money Creation in Banking: A Benchmark Result
52 Pages Posted: 11 Dec 2017
Date Written: November 15, 2017
We establish a benchmark result for the relationship between the loanable funds and the money-creation approach to banking. In particular, we show that both processes yield the same allocations when there is no uncertainty and thus no bank default. In such cases, using the much simpler loanable funds approach as a shortcut does not imply any loss of generality.
Keywords: Money Creation, Bank Deposits, Capital Regulation, Monetary Policy, Loanable Funds
JEL Classification: D50, E4, E5, G21
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