Topics in money and banking

The first chapter is a theoretical investigation on a largely ignored issued in monetary economics: currency counterfeits. The question of currency counterfeiting is investigated under an otherwise conventional overlapping generations model of fiat money. The model suggests that the steady state equilibrium where the economy is inundated with counterfeits is always a possibility, and may be the only possibility. Moreover the rate of genuine money growth does not affect welfare associated with this steady state. However, the model may also exhibit an equilibrium where the economy asymptotically approaches the steady state, with only a fraction of the money in circulation being counterfeit. Finally, contrary to common beliefs, the model also does not deem a high-detection, heavy punishment policy approach to counterfeiting as being optimal. The second chapter is a theoretical investigation on the relationship between financial intermediation and real economic progress. I integrate two important features of the financial sector, namely information frictions among savers and bankers, and costly utilization of intermediaries, with the standard overlapping generations model of growth. I find that the introduction of financial frictions may cause a delay in the actual formation of the financial sector, which in turn delays the development in the real sector. At the same time, the model may also exhibit a scenario where the condition is never ripe for the development of the financial sector. In this latter case, real economic activities are forever retarded. The third chapter offers a particular avenue of pursuit for future research in the field of financial intermediation and real growth. In particular, conventional thinking has focused primarily on the sources of information frictions to capture and explain any inefficient equilibrium outcomes. I present a simple theoretical framework that seriously considers the role of market power in affecting the intertemporal allocation of resources, and subsequently the growth experience.