The Mechanics of Money:

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The Mechanics of Money: Money Data ECO 473 - Money & Banking - Dr. D. Foster

Multipliers Money multipliers are derived from the data: M1/MB = m1* and M2/MB = m2* Had been constant (+/-) 1960s-1970s. Grew at constant rate in 1980s. Fed targets for money depends on: which multiplier is more stable, and which M is a better predictor of GDP. or, gives up and targets some other variable …

Money Data

Money Data The Monetary Base

Money Data The Currency Ratio

Effective Reserve Ratio Money Data Effective Reserve Ratio

Money Data Excess Reserve Ratio

Money Data M1 multiplier (1984+)

Money Data M1 multiplier (2001+)

Money Data M2 multiplier (1981+)

Money Data M2 multiplier (2007+)

The Banking System Reserves T-Bills Loans Deposits (Transactions) M1

The Role of the Fed The Fed buys/sells Treasury securities. This raises/lowers bank reserves. This raises/lowers excess reserves. This causes banks to increase/decrease loans. This will raise/lower measured money, M1.

The Banking System Reserves T-Bills Loans Deposits (Transactions) M1

The Mechanics of Money: Money Data ECO 473 - Money & Banking - Dr. D. Foster

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