Money Creation and Destruction

Arbeitspapier

We study money creation and destruction in today’s monetary architecture within a general equilibrium setting. Two types of money are created and destructed: bank deposits, when banks grant loans to firms or to other banks, and central bank money, when the central bank grants loans to private banks. We show that symmetric equilibria yield the first-best allocation when prices are exible, regardless of the monetary policy or capital regulation. When prices are rigid, we identify the circumstances in which money creation is excessive or breaks down and how an adequate combination of monetary policy and capital regulation may restore efficiency.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 6565

Classification and Topics

• Classification: Wirtschaft ; General Equilibrium and Disequilibrium: General ; Money and Interest Rates: General ; Monetary Policy, Central Banking, and the Supply of Money and Credit: General ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages
• Subject: money creation ; bank deposits ; capital regulation ; zero lower bound ; monetary policy ; price rigidities

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Faure, Salomon ; Gersbach, Hans
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2017

Further information

• Handle: http://hdl.handle.net/10419/167551
• Last update: 10.03.2025, 11:44 AM CET