Money, Credit and Banking

CESifo Working Paper Series No. 1617

IEW Working Paper No. 219

39 Pages Posted: 17 Jan 2006

See all articles by Aleksander Berentsen

Aleksander Berentsen

University of Basel - Economics Department; CESifo (Center for Economic Studies and Ifo Institute)

Gabriele Camera

Chapman University - Economic Science Institute; University of Bologna - Dept. of Economics

Christopher J. Waller

Federal Reserve Banks - Federal Reserve Bank of St. Louis; University of Notre Dame - Department of Economics

Date Written: December 2005

Abstract

In many situations, some people hold large money balances but have no particular urgency to spend them while others are liquidity constrained. This problem creates a role for financial intermediaries who accept nominal deposits and make nominal loans. We show that financial intermediation improves the allocation away from the Friedman rule. The gains in welfare come from the payment of interest on deposits and not from relaxing borrowers' liquidity constraints. We also demonstrate that increasing the rate of inflation can be welfare improving when credit rationing occurs.

Keywords: Money, credit, rationing, banking

JEL Classification: E00, D83, E52

Suggested Citation

Berentsen, Aleksander and Camera, Gabriele and Waller, Christopher J., Money, Credit and Banking (December 2005). ; IEW Working Paper No. 219. Available at SSRN: https://ssrn.com/abstract=647341

Aleksander Berentsen (Contact Author)

University of Basel - Economics Department ( email )

Petersgraben 51
Basel, CH-4003
Switzerland

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Gabriele Camera

Chapman University - Economic Science Institute ( email )

Orange, CA 92866
United States

HOME PAGE: http://www1.chapman.edu/~camera/

University of Bologna - Dept. of Economics ( email )

Strada Maggiore 45
Bologna, 40125
Italy

Christopher J. Waller

Federal Reserve Banks - Federal Reserve Bank of St. Louis

411 Locust St
Saint Louis, MO 63011
United States

University of Notre Dame - Department of Economics ( email )

434 Flanner Hall
Notre Dame, IN 46556
United States
574-631-4963 (Phone)
574-631-9238 (Fax)

HOME PAGE: http://www.nd.edu/~cwaller/

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