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Author:Smith, Bruce D. 

Working Paper
The social value of risk-free government debt

This paper considers whether eliminating the stock of government debt outstanding would reduce welfare. It models an economy with three assets?currency, government bonds, and storage, a transactions role for money, and a demand for liquidity and thus a role for banks. The Friedman rule is not optimal in this economy, so there is potentially a role for interest-bearing, risk-free government bonds. Because the government must raise enough revenue to meet its interest obligations on any bonds outstanding, the social value of government debt hinges on whether the benefits from greater portfolio ...
Research Working Paper , Paper RWP 03-02

Journal Article
Monetary policy and financial market evolution

Review , Volume 85 , Issue Jul , Pages 7-26

Working Paper
Deposit insurance: a reconsideration

This paper undertakes a simple general equilibrium analysis of the consequences of deposit insurance programs, the way in which they are priced and the way in which they fund revenue shortfalls. We show that the central issue is how the government will make up any FDIC losses. Under one scheme for making up the losses, we show that FDIC policy is irrelevant: it does not matter what premium is charged, nor does it matter how big FDIC losses are. Under another scheme, all that matters is the magnitude of the losses. And there is no presumption that small losses are ?good.? We also show that ...
Working Papers , Paper 593

Conference Paper
Inflation, financial markets and capital formation

Proceedings , Volume 78 , Issue May , Pages 9-35

Working Paper
Lessons from a laissez-faire payments system: the Suffolk Banking System (1825–1858)

The classic example of a privately created and well-functioning interbank payments system is the Suffolk Banking System that existed in New England between 1825 and 1858. This System, operated by the Suffolk Bank, was the first regionwide net-clearing system for bank notes in the United States. While it operated, notes of all New England banks circulated at par throughout the region. The achievements of the System have led some to conclude that unfettered competition in the provision of payments services can produce an efficient payments system. In this paper, we reexamine the history of the ...
Working Papers , Paper 584

Conference Paper
Crises in competitive versus monopolistic banking systems

We study a monetary, general equilibrium economy in which banks exist because they provide inter-temporal insurance to risk-averse depositors. A "banking crisis" is defined as a case in which banks exhaust their reserve assets. This may (but need not) be associated with liquidation of a storage asset. When such liquidation does occur, the result is a real resource loss to the economy and we label this a "costly banking crisis." There is a monetary authority whose only policy choice is the long-run, constant rate of growth of the money supply, and thus the rate of inflation. Under ...

Journal Article
Inflation, financial markets and capital formation

Review , Volume 78 , Issue May , Pages 9-35

Working Paper
Unemployment, migration, and growth

Economic development is typically accompanied by a very pronounced migration of labor from rural to urban employment. This migration, in turn, is often associated with large scale urban underemployment. Both factors appear to play a very prominent role in the process of development. We consider a model in which rural-urban migration and urban underemployment are integrated into an otherwise conventional neoclassical growth model. Unemployment arises not from any exogenous rigidities, but from an adverse selection problem in labor markets. We demonstrate that, in the most natural case, ...
Working Papers , Paper 561

Working Paper
Limited information, money, and competitive equilibrium

In an overlapping generations model with borrowing and lending, uncertainty, and asymmetric information, fiat money may be essential to the existence of a competitive equilibrium. It may also serve to enhance the information of economic agents in a well-defined sense. In addition, the model presented provides suggestions about why the presence of valued fiat currency is essential to existence of equilibrium, even though in equilibrium perfect substitutes for money may exist.
Working Papers , Paper 204

Journal Article
Lessons from a laissez-faire payments system: the Suffolk Banking System, 1825-58

Review , Issue May , Pages 105-116


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