Optimal Bank Behavior under Uncertain Inflation

  • Published: Apr 30, 2012
  • Pages: 1159-1171
  • DOI: 10.1111/j.1540-6261.1985.tb02369.x


In this paper, we derive a model of the individual banking firm facing stochastic inflation. The bank is considered as a depository financial intermediary operating in the primary market as a multiproduct price discriminating firm. A secondary market is also considered where liquidity surpluses and deficits are traded. Two types of assets and liabilities are assumed: deposits and loans linked to a general price level and nonlinked instruments. Effects of changes in the parameters such as inflation rate and variability, reserve requirements are analyzed.

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