Comments on: Financial firm production of monetary and credit card services: An aggregation theoretic approach

By: William A. Barnett

William A. Barnett — Wed, 21 Mar 2018 13:26:10 +0000

Qing, yes empirical implementation under risk could be a very important extension of the model, and would be very challenging, since the existence of credit rationing suggests that the usual assumptions of complete contingent claims markets may not apply. As you have correctly observed, this paper is about inside money. Outside money is a different matter. Long ago, the monetary base could be viewed as outside money, but that is no longer possible. In fact the monetary base has recently exceeded M1, which makes no sense. The problem is that the monetary base includes excess reserves, which now contains a vast amount of inside money. Some economists have attempted to produce an “outside base,” but no central banks provide those data.

By: Qing Han

Qing Han — Thu, 15 Mar 2018 19:47:14 +0000

Production side is fascinating and the masterful implementation of the Microeconomic theory guarantees the model is internally consistent! Production side analysis is easier for a typical firm, but that’s not the case for financial intermediaries which involve dealing with inside money. In perfect certainty case as in this paper, the outside money is the excess reserves. If we put into risk, banks will go to discount window to borrow from the Fed so as to increase the outside money. It would be exciting and practically important to see what kind of implications this might have on inside money!

By: monetarypolicyconferenceadmin

monetarypolicyconferenceadmin — Sun, 11 Mar 2018 00:20:03 +0000

Interesting model derived from the classical theories and adjusted to the contemporary times. Well done!