The business of money creation is conceptually distinct from that of intermediation. Yet, these two activities are frequently--but not always--combined together in the form of a banking system. We develop a simple model to examine the question: When is banking essential? There is a role for...

This study analyzes economies with an essential role for liquid assets in the exchange process. The model can generate multiple stationary equilibria, across which asset prices, market participation, capitalization, output and welfare are positively related. It can also generate a variety of...

Informational asymmetries regarding the future value of assets affect their role in exchange. I construct a random-matching economy composed of two assets: a risk-free bond and a Lucas tree whose terminal value is privately known to its holder. No restrictions are imposed on payment...

The effective liquidity supply of the economy—the weighted-sum of all assets that serve as media of exchange—matters for interest rates and unemployment. We formalize this idea by adding an over-the-counter market with collateralized trades to the Mortensen–Pissarides model. An increase in...