Journal Article

No. 2007-5 | June 22, 2007
An Idealized View of Financial Intermediation PDF Icon


We consider an environment where the general equilibrium assumption that every agent buys and sells simultaneously is relaxed. We show that fiat money can implement a Pareto optimal allocation only if taxes are type-specific. We then consider intermediated money by assuming that financial intermediaries whose liabilities circulate as money have an important identifying characteristic: they are widely viewed as default-free. The paper demonstrates that default-free intermediaries who issue deposit accounts with credit lines to consumers can resolve the monetary problem and make it possible for the economy to reach a Pareto optimum.

JEL Classification

E5 G2


Carolyn Sissoko (2007). An Idealized View of Financial Intermediation. Economics: The Open-Access, Open-Assessment E-Journal, 1 (2007-5): 1—29.


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