Towards a Reformulation of Monetary Theory: Competitive Banking

63 Pages Posted: 8 Aug 2007

See all articles by Joseph E. Stiglitz

Joseph E. Stiglitz

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Bruce C. N. Greenwald

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Date Written: July 1992

Abstract

This paper, after providing a critique of standard monetary theory based on the transactions demand for money, examines the effect of monetary policy (changes in reserve requires and open market operations) in a model with competitive, risk averse banks. The effects of changes in bank net worth and bank's risk perceptions are also analyzed. In deep recessions, monetary policy may be ineffective because banks are unwilling to lend. The effects of monetary policy are, at most, only partially mediated through changes in the interest rate. The implications for traditional IS-LM analysis are briefly noted.

Suggested Citation

Stiglitz, Joseph E. and Greenwald, Bruce, Towards a Reformulation of Monetary Theory: Competitive Banking (July 1992). NBER Working Paper No. w4117. Available at SSRN: https://ssrn.com/abstract=476195

Joseph E. Stiglitz (Contact Author)

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Bruce Greenwald

Columbia Business School - Finance and Economics ( email )

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National Bureau of Economic Research (NBER)

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