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Princeton Univ. August 8, 2016, 64 pgs.
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Reviewer comment:
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Abstract: Professor Brunnermeier writes that
a proper 'theory of money' requires some place and discussion for the role of
financial intermediaries. These institutions play an important role not only in
diversifying risk but also in creating actual 'inside' money. During financial
crises they will reduce their lending (creation of credit money) - sell assets
if necessary at reduced prices - and supply less 'inside' money to the economy.
But the financial crisis needs more money. As Irving Fisher noted this
'disinflation' has negative impact on the intermediaries and other borrowers.
It makes the initial situation even worse. The crisis then reduces 'liquidity'
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Their article describes their monetary theory
that advocates a monetary policy to prevent this.
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References
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and
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Professor Brunnermeier's article in the
Journal of Economic Perspectives - "Deciphering the Liquidity and Credit
Crunch 2007-2008 focuses on an actual event that was a sample of the adverse
situation that this theory is designed to prevent.
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