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Transactions Costs, Inflation, and the Variety of Intermediation Services

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  • Williamson, Stephen D

Abstract

A general-equilibrium model with fixed costs of financial intermediation and costs of transacting with intermediaries is constructed. This model is used to show that ignoring fixed costs of in termediation is not innocuous in Tobin-Baumol-type transactions cost models of money demand. Deflation is optimal in spite of the fact that an increase in inflation reduces nominal interest rates and may increase the transactions costs incurred by all groups of economic agents. Changes in reserve requirements have ambiguous effects. The authors obtain novel results due to the fact that the variety of intermediation services is affected by government intervention. Copyright 1987 by Ohio State University Press.

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  • Williamson, Stephen D, 1987. "Transactions Costs, Inflation, and the Variety of Intermediation Services," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(4), pages 484-498, November.
    • Handle: RePEc:mcb:jmoncb:v:19:y:1987:i:4:p:484-98
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    Cited by:

    1. Ari Hyytinen & Otto Toivanen, 2003. "Asymmetric Information and the Market Structure of the Venture Capital Industry," Journal of Financial Services Research, Springer;Western Finance Association, vol. 23(3), pages 241-249, June.
    2. Ari Hyytinen & Tuomas Takalo, 2002. "Enhancing Bank Transparency: A Re-assessment," Review of Finance, European Finance Association, vol. 6(3), pages 429-445.
    3. Hyytinen, Ari, 2003. "Information production and lending market competition," Journal of Economics and Business, Elsevier, vol. 55(3), pages 233-253.
    4. Randall Wright & Yuet‐Yee Wong, 2014. "Buyers, Sellers, And Middlemen: Variations On Search‐Theoretic Themes," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55(2), pages 375-397, May.
    5. Cothren, Richard & Mukherji, Nivedita, 1997. "Optimal monetary policy in a world with risky investments and financial intermediaries," Journal of Economics and Business, Elsevier, vol. 49(1), pages 21-42, February.
    6. Amable, Bruno & Chatelain, Jean-Bernard & De Bandt, Olivier, 2002. "Optimal capacity in the banking sector and economic growth," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 491-517, March.
    7. Bruno Amable & Jean-Bernard Chatelain, 1999. "Infrastructures financières et croissance économique," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00432131, HAL.
    8. Hyytinen, Ari, 2001. "Information Production, Banking Competition and the Market Structure of the Banking Industry," Discussion Papers 749, The Research Institute of the Finnish Economy.
    9. Hyytinen, Ari & Pajarinen, Mika, 2001. "Financial Systems and Venture Capital in Nordic Countries: A comparative Study," Discussion Papers 774, The Research Institute of the Finnish Economy.
    10. Sherrill Shaffer, 2008. "Earnings Valuation And Sources Of Growth," CAMA Working Papers 2008-32, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

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