This setting lets you change the way you view articles. You can choose to have articles open in a dialog window, a new tab, or directly in the same window.
Open in Dialog
Open in New Tab
Open in same window

American Economic Review: Vol. 96 No. 1 (March 2006)

Expand

Quick Tools:

Print Article Summary
Export Citation
Sign up for Email Alerts Follow us on Twitter

Explore:

AER - All Issues

AER Forthcoming Articles

Money in a Theory of Banking

Article Citation

Diamond, Douglas W., and Raghuram G. Rajan. 2006. "Money in a Theory of Banking." American Economic Review, 96(1): 30-53.

DOI: 10.1257/000282806776157759

Abstract

We examine the role of banks in the transmission of monetary policy. In economies where banks use real demand deposits to finance their lending, fluctuations in the timing of production can force banks to scramble for real liquidity, or even fail, which can greatly affect lending and aggregate output. The adverse effect on output can be reduced if banks finance with nominal deposits. Nominal deposits also open a "financial liquidity" channel for monetary policy to affect real activity. The banking system may be better off, however, issuing real deposits (e.g., foreign exchange denominated) under some circumstances.

Article Full-Text Access

Full-text Article

Additional Materials

Link to Appendix (91.12 KB)

Authors

Diamond, Douglas W.
Rajan, Raghuram G.


American Economic Review


Quick Tools:

Sign up for Email Alerts

Follow us on Twitter

Subscription Information
(Institutional Administrator Access)

Explore:

AER - All Issues

AER - Forthcoming Articles

Virtual Field Journals


AEA Member Login:


AEAweb | AEA Journals | Contact Us