publication . Preprint . 2006

Aggregate Uncertainty, Money and Banking

Hongfei Sun;
Open Access
  • Published: 03 Dec 2006
This paper studies the problem of monitoring the monitor in a model of money and banking with aggregate uncertainty. It shows that when inside money is required as a means of bank loan repayment, a market of inside money is entailed at the repayment stage and generates information-revealing prices that perfectly discipline the bank. The incentive problem of a bank is costlessly overcome simply by involving inside money in repayment. Inside money distinguishes itself from outside money by its inherent ability to provide incentives even on the existence of multiple banks. Thus, in addition to providing liquidity to the economy, inside money contributes to banking ...
acm: TheoryofComputation_GENERAL
free text keywords: Money, Banking, Aggregate Uncertainty, jel:G21, jel:E00, jel:D82
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