Monetary and Economic Studies Vol.10, No.1 / February 1992

The Determination of Monetary Aggregates and Interest Rates

Mitsuru Iwamura

This paper is concerned with a perfectly competitive equilibrium model of the money market under the assumption of increasing marginal costs for both deposits and loans. This model illustrates a determination mechanism of monetary aggregates and interest rates. As this novel assumption of increasing marginal costs is not widely adopted in the literature, this paper discusses, at some length, how marginal costs can be considered to increase with the size of deposits by employing the results from the queuing theory.

Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan or Institute for Monetary and Economic Studies.

Copyright © 1992 Bank of Japan All Rights Reserved.

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