Title: Monitoring and the Acceptability of Bank Money
Abstract:This paper presents a simple environment where bank-like financial intermediaries endogenously emerge. The economy is one where the return of investment projects depend on monitoring, and where agents...This paper presents a simple environment where bank-like financial intermediaries endogenously emerge. The economy is one where the return of investment projects depend on monitoring, and where agents value the liquidity of their investments. Monitoring enhances the return of long term projects but also creates informational asymmetries that hamper their tradeability. This tradeoff creates a role for intermediaries who jointly perform delegated monitoring and create liquidity for their claim-holders. The analysis provides a unified explanation for the high acceptability of intermediaries’ liabilities and the illiquidity of their assets.Read More
Publication Year: 2003
Publication Date: 2003-06-05
Language: en
Type: article
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