The purpose of this paper is to investigate the optimal rate of money supply growth when a moral hazard problem in an insurance market makes the risk diversification incomplete. The analysis is based on a simple overlapping generations model of fiat money with idiosyncratic uncertainty. Without...

One of the risks that banks need to manage, in their financial intermediation activities, is liquidity risk. Thus, banks hold reserves for precautionary reasons, in order to keep enough cash to meet their obligations. In this work, we analyze the demand for excess reserves by Euro Area banks,...

I apply SVAR tools and counterfactual simulation techniques to study the (de)stabilizing role of monetary and fiscal policies in the US, using quarterly data from 1955 to 2005. Monetary and fiscal disturbances contributed much less to output volatility in the second part of the sample. This...

Macroeconomic policies are meant to achieve non-inflationary, stable growth. There are two major groups of policy instruments to achieve the purpose; one is related to monetary conditions and the other to fiscal conditions. Monetary instruments are employed by the central bank and fiscal...

The importance of ensuring liquidity exceeds the level of a single banking institution, since recording of the deficit of liquidity only at the level of a single bank may have nevagtive repercurssions on the whole banking system, and entire national economy. Liquidity represents one the...