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Intermediaries and Payments Instruments
| Venue: | Journal of Economic Theory |
| Citations: | 6 - 0 self |
BibTeX
@ARTICLE{Bullard_intermediariesand,
author = {James Bullard and Bruce D. Smith},
title = {Intermediaries and Payments Instruments},
journal = {Journal of Economic Theory},
year = {},
pages = {172--197}
}
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Abstract
We study an economy in which intermediaries have incentives to issue circu-lating liabilities as part of an equilibrium. We show that, with arbitrarily small transactions costs, only the liabilities of intermediaries will circulate, and not those of other private sector agents. Therefore, our model connects intermedi-ation activity with the issuance of payments media, a connection that has not been made in earlier literature. We use our model to suggest a resolution of the “banknote underissue puzzle ” of Cagan [4]. Journal of Economic Literature
