Monetary Policy with Unregulated Banks

Publication Date
Financial Markets Group Discussion Papers DP 21
Publication Authors

An  analytical basis is provided for the conduct of monetary policy in an economy with a completely unregulated banking system. In particular, the paper addresses two major issues. Firstly, it establishes conditions under which the price level is determinate in an unregulated environment; secondly it examines the conditions under which either of two extremes, the quantity theory of money or the Modigliani-Miller theorem for open market operations, may hold. 

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