Private money creation, liquidity crises, and government interventions

Benigno, Pierpaolo; Robatto, Roberto (2019). Private money creation, liquidity crises, and government interventions. Journal of monetary economics, 106, pp. 42-58. Elsevier 10.1016/j.jmoneco.2019.07.005

Preview

Text 1-s2.0-S0304393219301205-main.pdf - Published Version Available under License Creative Commons: Attribution-Noncommercial-No Derivative Works (CC-BY-NC-ND). Download (647kB) | Preview

The joint supply of public and private liquidity is examined when financial intermediaries issue both riskless and risky debt and the economy is vulnerable to liquidity crises. Government interventions in the form of asset purchases and deposit insurance are equivalent (in the sense that they sustain the same equilibrium allocations), increase welfare, and, if fiscal capacity is sufficiently large, eliminate liquidity crises. In contrast, restricting intermediaries to investing in low-risk projects always eliminates liquidity crises but reduces welfare. Under some conditions, deposit insurance gives rise to an equilibrium in which intermediaries that issue insured debt (i.e., traditional banks) coexist with others that issue uninsured debt (i.e., shadow banks), despite the two being ex ante identical.

Interest & Impact

Downloads

100 since deposited on 03 Apr 2020
25 in the past 12 months

Citations

5 Citations in Web of Science ®
6 Citations in Scopus

Search

in Google Scholar™

Services

Actions (login required)

Edit item

Actions (login required)

Edit item