Developing an Overlapping Generation Model of Fractional Reserve Banking Activity with Emphasis on Maurice Allais's Approach

Authors
mohammad mehdi mojahedi moakhar 1
Rahim Dallali Esfahani 1
Saeid Samadi 1
Rasoul Bakhshi Dastjerdi 2
1 Esfahan University
2 Yazd University
Abstract
The purpose of this paper is to investigate the source of fractional reserve banking and to review the literature on bank credit. Evaluating the operational procedure of this banking model demonstrates a new concept of credit money shaping aspect and its affect on the practical economy. The difference in due dates between depositing and receiving loan that causes Ex-nihio money to exist, the effect of this money on prices along with economic instability are among the issues that have occupied the critic scholar's minds in fractional reserve banking realm. In this paper, the effects of the fractional reserve banking model on the consumption behavior are analyzed. Also, the view points of the critics of this banking model are addressed. In this regard, an inter-generational consumption behavior model based on Maurice Allais's perspectives has developed. Results show that optimizing the existing model is the true test of the consumption instability in a permanent state in the fractional reserve banking realm. Also, according to the results there exits the possibility of instable capital repletion under certain circumstances.
Keywords
Ex-nihio money
fractional reserve banking
establishing credit
fiat money