Carlo Strub

Bank Deposits and Credit in General Equilibrium

We present a general equilibrium model of money with bank deposits and credit. Banks have two roles: first they act as safe-keepers of agents’ values, second they act as transaction operators because they are able to identify agents. We show that there exists an equilibrium where money co-exists with bank deposits although interest rates payed on deposits are positive. Further, we compare our model to the basic framework where banks only act as safe-keepers and are not allowed to issue loans. Finally, we show that loans are welfare improving and that the money multiplier is decreasing over the inflation rate. Download:

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