Autori
Gale, Douglas
Allen, Franklin
Carletti, Elena

Titolo
Money, Financial Stability and Efficiency
Periodico
European University Institute of Badia Fiesolana (Fi). Department of Economics - Working papers
Anno: 2011 - Fascicolo: 4 - Pagina iniziale: 1 - Pagina finale: 40

Most analyses of banking crises assume that banks use real contracts. However, in practice contracts are nominal and this is what is assumed here. We consider a standard banking model with aggregate return risk, aggregate liquidity risk and idiosyncratic liquidity shocks. We show that, with non-contingent nominal deposit contracts, the first-best efficient allocation can be achieved in a decentralized banking system. What is required is that the central bank accommodates the demands of the private sector for fiat money. Variations in the price level allow full sharing of aggregate risks. An interbank market allows the sharing of idiosyncratic liquidity risk. In contrast, idiosyncratic (bank-specific) return risks cannot be shared using monetary policy alone; real transfers are needed.




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