Journal Article

Inside-money theory after Diamond and Dybvig

Abstract: In this article, I discuss the broad influence of Diamond and Dybvig (1983) in the field of money and banking. My review is centered on two aspects of their sharp concept of liquidity when doing mechanism design in a simple economy with a single resource constraint. It calls into question an old approach in macroeconomics of mixing trading games with market institutions. A comparison with the modern money literature reveals that individuals in that model are strongly monitored. A middle ground between that setting and the anonymity setup of matching models of money without credit should lead to new questions about banking regulation and monetary policy.

Keywords: Financial institutions; Inflation (Finance); Monetary policy;

Bibliographic Information

Provider: Federal Reserve Bank of Richmond

Part of Series: Economic Quarterly

Publication Date: 2010

Volume: 96

Issue: 1Q

Pages: 59-82