Thomas Quint and Martin Shubik
- Published in print:
- 2014
- Published Online:
- May 2014
- ISBN:
- 9780300188158
- eISBN:
- 9780300199222
- Item type:
- chapter
- Publisher:
- Yale University Press
- DOI:
- 10.12987/yale/9780300188158.003.0014
- Subject:
- Economics and Finance, Macro- and Monetary Economics
Competitive private banking is modeled in the presence of a central bank. We open with a discussion of questions our simple constructs can answer, noting why in our models the competitive banks’ ...
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Competitive private banking is modeled in the presence of a central bank. We open with a discussion of questions our simple constructs can answer, noting why in our models the competitive banks’ profits are cycled back to the traders. We discuss the role of the central bank. Two simple models are sketched and solved. In both of them the objective of the corprate banks is to maximize monetary profit. The first model is a sell-all model with no reserve requirements for the banks, while the second has reserve requirements. Much of this chapter is devoted to a verbal discussion of the problems faced in varying the money supply over several periods and considering reserve ratio lending. Satisfactory formal mathematical models of reserve ratio banking cannot be built without adding a multiperiod structure. An adequate mathematization of commercial banking remains to be done.Less
Competitive private banking is modeled in the presence of a central bank. We open with a discussion of questions our simple constructs can answer, noting why in our models the competitive banks’ profits are cycled back to the traders. We discuss the role of the central bank. Two simple models are sketched and solved. In both of them the objective of the corprate banks is to maximize monetary profit. The first model is a sell-all model with no reserve requirements for the banks, while the second has reserve requirements. Much of this chapter is devoted to a verbal discussion of the problems faced in varying the money supply over several periods and considering reserve ratio lending. Satisfactory formal mathematical models of reserve ratio banking cannot be built without adding a multiperiod structure. An adequate mathematization of commercial banking remains to be done.
