We use a modified version of the Lagos-Wright model to introduce an essential role for banks. Due to preference shocks, agents have excess demand for or supply of money balances. Banks arise to reallocate excess cash by taking deposits from sellers and making loans to buyers. We consider two...

The first generation models of currency crises have often been criticized because they predict that, in the absence of very large triggering shocks, currency crises should be predictable and associated with small devaluations. This paper shows that these features of first generation models are...