This paper derives the optimal size of the financial sector using a general equilibrium framework that is an extension of Holmstrom and Tirole's 1997 paper. We show that the financial sector has a unique optimal size relative to the size of the economy as a whole. Creating and maintaining this...

Prepaid cards, cash cards, electronic purses, smart cards these are but a few of the elements inthe revolution now taking place in monetary systems around the world. At that movement's heart is the emergence of a new value transfer system where alternative monies are offered toconsumers through...

A unified model of monetary policy and bank regulation is presented. In accordance with modern banking theory, banks not only intermediate loans and deposits but also provide a financial service affecting aggregate output. Optimal parameter settings for monetary and regulatory policy are...

This paper investigates the demand by households for transaction services from the financial sector. Households buy several goods with any of several media of exchange. The households choose the medium of exchange to use for each type of good, how much of each type of medium to hold, and the...