Banks have long been required to hold reserves equal to a percentage of their net transactions accounts (checkable deposits, for example), but until recently, they earned no interest on those reserves. The Fed now pays interest on required and excess reserve balances, having been granted the...

This essay articulates the principles and practices of New Monetarism, the authors' label for a recent body of work on money, banking, payments, and asset markets. They first discuss methodological issues distinguishing their approach from others: New Monetarism has something in common with Old...

During 1932, with congressional support, the Fed purchased approximately $1 billion in Treasury securities.

Delivered at The Institute of Regulation and Risk North Asia, The Grand Ballroom, Conrad Hotel, Pacific Place, Hong Kong. This speech was also delivered at The Institute of Regulation and Risk North Asia, The InterContinental Hotel, Tokyo Bay, Japan, June 14, 2010.

The Federal Reserve abandoned foreign-exchange-market intervention because it conflicted with the System’s commitment to price stability. By the early 1980s, economists generally concluded that, absent a portfolio-balance channel, sterilized foreign-exchange-market intervention did not provide...

In this article, I discuss the broad influence of Diamond and Dybvig (1983) in the field of money and banking. My review is centered on two aspects of their sharp concept of liquidity when doing mechanism design in a simple economy with a single resource constraint. It calls into question an old...

This special issue of the Economic Quarterly is dedicated to the 1983 model of bank runs developed by Douglas Diamond and Philip Dybvig. Their model has been a workhorse of banking research over the last 25 years and during the recent financial crisis it has been one that researchers and...

Despite the cogent criticism that "bailing out" insolvent firms creates moral hazard, bailouts often occur in the aftermath of bank runs and other financial crises. In an environment where it is economically efficient to make illiquid investments, and where investors have private information...

This article uses a class of models of money and the payments system to inform an analysis of "mobile banking" in the context of the rapid expansion of M-PESA, a new technology in Kenya that allows payments via mobile phones (even without any access to a bank account), and currently reaches...