Banks are special in that their liabilities are widely accepted as a means of payment, thereby often needed by real sectors to obtain resources. This paper studies this interaction between the banking sector and real sectors on competitive markets and the policy response of the central bank to...

This paper considers money creation by banks and central banking in a model where a means of payment is issued by both the central bank and banks, and the private issuance is endogenous in competitive equilibrium. The economy lasts for two dates, but the central bank gets its purely nominal...

This paper shows that monetary policy produces real effects in the steady state by impacting banks' liquidity constraint, in the absence of frictions that have been used to generate non-neutrality, such as nominal rigidity and search frictions. Moreover, the effects for different types of banks...

This paper studies non-neutrality of monetary policy incorporating three facts: The majority of media of exchange is not fiat money but bank liability; fiat money is largely used by banks to meet liquidity demand; and banks extensively use government bonds for liquidity management. It finds that...

This paper studies the implication of banks' money creation and liquidity management for monetary policy. When borrowing fiat money banks use a government bond as collateral, which pays a fixed stream of nominal dividend. A variation in fiat money's quantity alters its unit real value, thereby...