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Money and Banking in Search Equilibrium (2005)
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| Venue: | International Economic Review |
| Citations: | 27 - 6 self |
BibTeX
@ARTICLE{He05moneyand,
author = {Ping He and Lixin Huang and Randall Wright},
title = {Money and Banking in Search Equilibrium},
journal = {International Economic Review},
year = {2005}
}
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Abstract
This paper develops a new theory of money and banking based on an old story about money and banking. The story is that bankers originally accepted deposits for safe keeping; then their liabilities began to circulate as means of payment (bank notes or checks). We develop models where money is a medium of exchange, but subject to theft, where theft may be exogenous or endogenous. We analyze how the equilibrium circulation of cash and demand deposits varies with the cost of banking and the outside money supply. We study cases with 100 % reserves and with fractional reserves. We thank Ken Burdett, Ed Nosal, Peter Rupert, Joseph Haubrich, Warren Weber, Francois Velde, Steve Quinn and Larry Neal for suggestions or comments. We thank the NSF and the Federal Reserve Bank of Cleveland for ¯nancial support. The usual disclaimer applies. 1 The theory of banking relates primarily to the operation of commercial banking. More especially it is chie°y concerned with the activities of banks as holders of deposit accounts against which cheques are drawn for the payment of goods and services. In Anglo-Saxon countries, and in other countries where economic life is highly developed, these cheques constitute the major part of circulating medium. EB (1954, vol.3, p.49). 1
Keyphrases
search equilibrium new theory nancial support demand deposit varies ken burdett bank note ed nosal commercial banking equilibrium circulation peter rupert deposit account anglo-saxon country fractional reserve major part old story larry neal steve quinn economic life federal reserve bank banking relates francois velde usual disclaimer applies joseph haubrich outside money supply warren weber
