NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The I Theory of Money

Markus K. Brunnermeier, Yuliy Sannikov

NBER Working Paper No. 22533
Issued in August 2016
NBER Program(s):Asset Pricing, Corporate Finance, Economic Fluctuations and Growth, International Finance and Macroeconomics, Monetary Economics

A theory of money needs a proper place for financial intermediaries. Intermediaries diversify risks and create inside money. In downturns, micro-prudent intermediaries shrink their lending activity, fire-sell assets and supply less inside money, exactly when money demand rises. The resulting Fisher disinflation hurts intermediaries and other borrowers. Shocks are amplified, volatility spikes and risk premia rise. Monetary policy is redistributive. Accommodative monetary policy that boosts assets held by balance sheet-impaired sectors, recapitalizes them and mitigates the adverse liquidity and disinflationary spirals. Since monetary policy cannot provide insurance and control risk-taking separately, adding macroprudential policy that limits leverage attains higher welfare.

download in pdf format
   (1218 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w22533

Users who downloaded this paper also downloaded* these:
Brunnermeier and Sannikov w22133 On the Optimal Inflation Rate
Calvo w22535 From Chronic Inflation to Chronic Deflation: Focusing on Expectations and Liquidity Disarray Since WWII
Cochrane w22485 Macro-Finance
Benati, Lucas, Nicolini, and Weber w22475 International Evidence on Long Run Money Demand
Brunnermeier and Sannikov w22343 Macro, Money and Finance: A Continuous Time Approach
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us