Carolyn Sissoko

Curriculum Vita

Working Papers

An Idealized View of Financial Intermediation
Abstract: We consider an environment where the general equilibrium assumption that every agent buys and sells simultaneously is relaxed.  We show that fiat money can implement a Pareto optimal allocation only if taxes are type-specific.  We then consider intermediated money by assuming that financial intermediaries whose liabilities circulate as money have an important identifying characteristic:  they are widely viewed as default-free. The paper demonstrates that default-free intermediaries who issue deposit accounts with credit lines to consumers can resolve the monetary problem and make it possible for the economy to reach a Pareto optimum.

The Collapse of Deposit Banking:  An Explanation
Abstract: This paper asks why deposit banks thrived in the late middle ages, but had virtually disappeared by 1600 and studies banking in Venice in order to answer the question. A model is developed that shows that a partial reserve banking system is an efficient means of allocating investment funds only if the returns from long-term investment are sufficient to both compensate the banker for the costs of running a bank and to offer depositors a return over what they can receive through market allocation. We argue that the collapse of deposit banking in Venice occurred because the returns from long term investment fell in the 16th century, while the costs of operating deposit banks remained high.

Short-Term Credit a Monetary Channel Linking Finance to Growth
Abstract:  This paper develops a mechanism that links the combined monetary and financial role of intermediaries to the division of labor and endogenous growth. The model builds on an augmented Ramsey Cass Koopmans (RCK) model of optimal growth. First, by relaxing the assumption that each agent buys and sells at the same time an endogenous cash-in-advance constraint is created. The cash constraint is not binding for agents who borrow from intermediaries at the start of a period and repay the debt at the end of the period. Thus intermediated short-term credit is a solution to the monetary friction. Second to address the division of labor the symmetric n-good n-type structure of Kiyotaki and Wright's search model of money is nested into each period of the model. Because each type of agent is more productive when his production is specialized, relaxing the cash constraint leads to a division of labor. Finally the exogenous growth of the RCK model is reinterpreted as endogenous growth due to a process of learning-by-doing. We find that financial intermediaries by relaxing the cash constraint promote the division of labor which generates a process of endogenous growth.

Forthcoming Papers

Why Inside Money Matters -- please request by email
Abstract: This note observes that in a simple infinite horizon economy with heterogeneous endowments and a cash-in-advance constraint fiat money can be used to implement a Pareto optimum only with type-specific taxation. By contrast, if credit contracts are enforceable, the same allocation can be reached in equilibrium without type specific policy. We argue that the advantages of inside money and the fact that they depend on the capacity of the economy to enforce the repayment of debt direct us toward the study of the institutional infrastructure underlying self-enforcing inside money equilibria.