Formalization of Banking Intermediation in Portfolio Game

Abstract

Portfolio space (published at [1]) enables us to formalize economic activities. In paper [2] author has defmed production vector Y and new type of asset A2, that represent human work done during production of one new product. In this paper author have defmed key vectors of intemediation: D for creating deposit, C for granting credit, PP for paying back principal and PIR for paying back interest rate due. New type of assets A3 was introduced, that represent interest rate to be obtained in the future. Time money is represented by special type of assets A4. Both A3 and A4 have the same value as A1. So relative prices to Al are 1. Unit labor cost (ULe) is derived from production vector Y in chapter 3. In production chain is ULC defined recursively. Labor cost spent on inputs must be taken into account. Special attention is paid to mark up in production chain. These thanks to income constrained influence demand for final goods. Otherwise said mark up determine unsold products on the stock of final seller (in this case directly producer of them).Portfolio, banking intermediation, interest rate differential, income constraint, unit labor cost, mark up