We develop a model in which financial intermediaries hold liquidity to protect themselves from shocks. Depending on parameter values, banks may choose to hold too much or too little liquidity on aggregate compared with the socially optimal amount. The model endogenously generates a situation of...

This paper aims to integrate the money market into the structure of the economy. The microfoundation is the starting point to define the money market and the general equilibrium mechanism of the economy. On this basis, this research seeks a linking mechanism of the money market with economic...