chapter 16 Determinants of the Money Supply
Copyright © 2001 Addison Wesley Longman TM Money Multiplier M = m MB Deriving Money Multiplier R = RR + ER RR = r D D R = (r D D) + ER Adding C to both sides R + C = MB = (r D D) + ER + C 1. Tells us amount of MB needed support D, ER and C 2. $1 of MB in ER, not support D or C MB = (r D D) +({ER/D} D )+ ({C/D} D) = (r D + {ER/D} + {C/D}) D
Copyright © 2001 Addison Wesley Longman TM D = MB r D + {ER/D} + {C/D} M = D + ({C/D} D ) = (1 + {C/D}) D 1 + {C/D} M = MB r D + {ER/D} + {C/D} 1 + {C/D} m = r D + {ER/D} + {C/D} m < 1/r D because no multiple expansion for currency and because as D ER Full Model M = m (MB n + DL)
Copyright © 2001 Addison Wesley Longman TM Excess Reserves Ratio Determinants of {ER/D} 1.i , relative RET e on ER (opportunity cost ), {ER/D} 2.Expected deposit outflows, ER insurance worth more, {ER/D}
Copyright © 2001 Addison Wesley Longman TM Determinants of DL 1.i , i – i d , DL 2.i d , i – i d , DL Discount Loans and Interest Spread
Copyright © 2001 Addison Wesley Longman TM Factors Determining Money Supply
Copyright © 2001 Addison Wesley Longman TM Money Supply
Copyright © 2001 Addison Wesley Longman TM Determinants of the Money Supply
Copyright © 2001 Addison Wesley Longman TM Deposits at Failed Banks: 1929–33
Copyright © 2001 Addison Wesley Longman TM {ER/D}, {C/D}: 1929–33
Copyright © 2001 Addison Wesley Longman TM Money Supply and Monetary Base: 1929–33
Copyright © 2001 Addison Wesley Longman TM M2 Money Multiplier M2=D + ({C/D} D) + ({T/D} D) + ({MMF/D} D) = (1+{C/D}+{T/D}+{MMF/D}) D 1+{C/D}+{T/D}+{MMF/D} M2 = MB r D + {ER/D} + {C/D} 1+{C/D}+{T/D}+{MMF/D} m 2 = r D + {ER/D} + {C/D}
Copyright © 2001 Addison Wesley Longman TM Factors Determining M2