Merchants of Debt at the Extreme Overnight: Re-Considering Monetary Theories via Rollover-Induced Interbank Frictions

Bank regulations affect the behaviour of credit and money creation; hence, they are essential for economic growth and stability. This paper develops an analytical model of the monetary circuit to show the macroeconomic effects of money creation under bank regulations. It describes the equilibrium in which banks create money in accordance with capital adequacy ratios or net stable funding ratios. This study reveals the equilibrium economic growth rate and debt level. In addition, this paper demonstrates how bank regulations influence firm capital structures, and the conditions for firms using debt and filing for bankruptcy. Results show that bank regulations can transfer risk from banks to firms. In fact, this study identifies a channel through which banks actively influence the macroeconomy through their money creation.

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Merchants of Debt at the Extreme Overnight: Re-Considering Monetary Theories via Rollover-Induced Interbank Frictions

Cited by 3 publications

References 29 publications

Interbank Decisions and Margins of Stability: an Agent-Based Stock-Flow Consistent Approach

Interbank Decisions and Margins of Stability: an Agent-Based Stock-Flow Consistent Approach

The Value of Integrity: The Impact of Management Integrity on Corporate Financial Distress

The macroeconomic effects of endogenous credit and money creation under Basel III regulations

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