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Barley, Gold, or FiatToward a Pure Theory of Money$
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Thomas Quint and Martin Shubik

Print publication date: 2014

Print ISBN-13: 9780300188158

Published to Yale Scholarship Online: May 2014

DOI: 10.12987/yale/9780300188158.001.0001

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Competitive Banking I: Corporate Banking with a Central Bank

Competitive Banking I: Corporate Banking with a Central Bank

(p.202) Chapter 14 Competitive Banking I: Corporate Banking with a Central Bank
Barley, Gold, or Fiat

Thomas Quint

Martin Shubik

Yale University Press

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.

Keywords:   central bank, competitive banking, reserve banking, reserve ratio, varying money supply

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