Loanable Funds vs Money Creation in Banking: A Benchmark Result

52 Pages Posted: 11 Dec 2017  

Salomon Faure

ETH Zurich

Hans Gersbach

ETH Zurich - CER-ETH -Center of Economic Reseaarch; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Date Written: November 15, 2017

Abstract

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

Suggested Citation

Faure, Salomon and Gersbach, Hans, Loanable Funds vs Money Creation in Banking: A Benchmark Result (November 15, 2017). CFS Working Paper, No. 587, 2017. Available at SSRN: https://ssrn.com/abstract=3084152 or http://dx.doi.org/10.2139/ssrn.3084152

Salomon Faure

ETH Zurich ( email )

Zurichbergstrasse 18
ZUE D11
Zürich, 8092
Switzerland

Hans Gersbach (Contact Author)

ETH Zurich - CER-ETH -Center of Economic Reseaarch ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland
+41 44 632 82 80 (Phone)
+41 44 632 18 30 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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