Finance Seminar: Alexander Lipton, StrongHold Labs & MIT

Wednesday January 17, 2018 4:00 PM

Modern Monetary Circuit Theory and Stability of Financial Ecosystem

Speaker: Alexander Lipton
Location: Baxter B125

Abstract: A modern version of Monetary Circuit Theory with a particular emphasis on stochastic underpinning mechanisms is developed. Existing theories of money creation are compared and contrasted. It is explained how money is created by the banking system as a whole and by individual banks. The role of central banks as system stabilizers and liquidity providers is elucidated. It is shown that in the process of money creation banks become naturally interconnected. A novel "Extended Structural Default Model" describing the stability of the Interconnected Banking Network is proposed. The purpose of banks' capital and liquidity is explained. Multi-period constrained optimization problem for banks's balance sheet is formulated and solved in a simple case. Both theoretical and practical aspects are covered.

Finance Seminars at Caltech are funded through the generous support of The Ronald and Maxine Linde Institute of Economic and Management Sciences (lindeinstitute.caltech.edu) and Stephen A. Ross.

Series Finance Seminar Series

Contact: Sabrina De Jaegher at 626-395-4228 sabrina@hss.caltech.edu