Essays on money and banking: a search-theoretic approach
[EMBARGOED UNTIL 8/1/2023] My dissertation studies the role of banking in the monetary transmission. In the first chapter, I develop a monetary-search model where the money multiplier is endogenously determined. I show that when the central bank pays interest on reserves, the money multiplier and the quantity of the reserve can depend on the nominal interest rate and the interest on reserves. The calibrated model can explain the evolution of the money multiplier and the excess reserve-deposit ratio in the preand post-2008 periods. The quantitative analysis suggests that the dramatic changes in the money multiplier after 2008 were driven by the introduction of interest on reserves with a low nominal interest rate. In the second chapter, I develop a dynamic general equilibrium model to study the (in)stability of the fractional reserve banking system. The model shows that the fractional reserve banking system can endanger stability in that equilibrium is more prone to exhibit endogenous cyclic, chaotic, and stochastic dynamics under lower reserve requirements, although it can increase welfare in the steady-state. Introducing endogenous unsecured credit to the baseline model does not change the main results. This chapter also provides empirical evidence that is consistent with the prediction of the model.