A central proposition in research on the role that banks play in the transmission mechanism is that monetary policy imparts a direct impact on deposits and that deposits, insofar as they constitute the supply of loanable funds, act as the driving force of bank lending. This paper argues that the...

Few areas of monetary economics have been studied as extensively as the transmission mechanism. The literature on this topic has evolved substantially over the years, following the waxing and waning of conceptual frameworks and the changing characteristics of the financial system. In this paper,...

We argue that there is a connection between the interbank market for liquidity and thebroader financial markets, which has its basis in demand for liquidity by banks. Tightnessin the interbank market for liquidity leads banks to engage in what we term “liquiditypull-back,” which involves...

This paper contributes to the literature on the properties of money and creditindicators for detecting asset price misalignments. After a review of the evidence inthe literature on this issue, the paper discusses the approaches that can be consideredto detect asset price busts. Considering a...

Major differences between national financial systems might make a common monetary policy difficult. As within Europe, Germany and the United Kingdom differ most with respect to their financial systems, the present paper addresses its topic under the assumption that the United Kingdom is already...

This paper studies a overlapping generations economy with capital where limitedcommunication and stochastic relocation create an endogenous transactions role for…at money. We assume a production function with a knowledge-externality (Romer-style) that nests economies with endogenous growth (AK...

The Friedman rule, a widely studied prescription for monetary policy, is optimal inTownsend’s turnpike model of money; it is not so in the overlapping generations versionof his stochastic relocation model of money. We investigate these monetary models inthe light of this disparity. To that...

In this paper, we explore the connection between optimal monetary policy and heterogeneityamong agents. We study a standard monetary economy with two types of agents inwhich the stationary distribution of money holdings is non-degenerate. Sans type-specific fiscalpolicy, we show that the...

Securitization was meant to disperse credit risk to those who were better able to bear it. In practice, securitization appears to have concentrated the risks in the financial intermediary sector itself. This paper outlines an accounting framework for the financial system for assessing the impact...

What are liquidity crises? And what can be done to address them? This short paper brings together some personal reflections on this issue, largely based on previous work. In the process, it questions a number of commonly held beliefs that have become part of the conventional wisdom. The paper is...