Banking, Costly Credit, and Interest Rates with Limited Commitment

Hyung Sun Choi

doi:10.22841/kerdoi.2025.41.1.004

Banking, Costly Credit, and Interest Rates with Limited Commitment

Research output: Contribution to journal › Article › peer-review

Abstract

A model for banking is constructed to explore the role of a payment system with limited commitment as another determinant of a spread between the loan and deposit rates. Limited commitment constrains credit settlements. In equilibrium, collateral is required in the payment system and affects the loan rate, the distribution of money, consumption, and output. The optimal policy mix minimizes the interest rate spread and increases output. The Friedman rule is generally not optimal.

Original language	English
Pages (from-to)	111-140
Number of pages	30
Journal	Korean Economic Review
Volume	41
Issue number	1
DOIs	https://doi.org/10.22841/kerdoi.2025.41.1.004
Publication status	Published - 2025

Bibliographical note

Publisher Copyright:
© 2025, Korean Economic Association. All rights reserved.

Keywords

Banking
Costly Credit
Interest Rates
Limited Commitment
Payment System

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10.22841/kerdoi.2025.41.1.004

Cite this

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Banking, Costly Credit, and Interest Rates with Limited Commitment

Abstract

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Keywords

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