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| Author: | Gersbach, H. |
| Title: | Liquidity creation, efficiency, and free banking. |
| Journal: | Journal of Financial Intermediation
1998 : JAN, VOL. 7:1, p. 91-118 |
| Index terms: | LIQUIDITY BANKING DEBT SERVICE RATIO PARETO LAW |
| Language: | eng |
| Abstract: | The author examines the functioning of inside money competition in an overlapping generations model to address the question of whether the base of currency supply should be a monopoly. He studies how issuance of banknotes, liquidity creation, and payment processes interact in competitive and monopolistic banking industries. He shows that neither free banking nor monopoly banking achieves a first-best allocation. However, free banking is Pareto-inefficient compared to monopoly banking. |
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