On the (ir)relevance of the money multiplier model: The Fed view. It has long been known within the Federal Reserve System -- especially among economists who worked in the FRS in the 1970s and 1980s when much of the research agenda was directed at issues of monetary control -- that the money multiplier model of money stock determination is not the most realistic (or useful) way to understand how central banks conduct monetary policy.
Here is the former Fed Governor, the late Sherman Maisel, during a conference on the theme of 'Controlling Monetary Aggregates' in 1971: It is clear that, as a matter of fact, the Federal Reserve does not attempt to increase the money supply by a given amount in any period by furnishing a fixed amount of reserves on the assumption that they would be multiplied to result in a given increase in money [...] Briefly, the money multiplier is basically a relationship between deposits (D) and reserves (R), D = mR, (or M = mB) where m is called the money multiplier (or M is money stock and B is the monetary base). ... References. A Post Keynesian Perspective on the Rise of Central Bank Independence:
Shadow Government Statistics - Home Page. Debating quantitative easing. The (other) deleveraging: What economists need to know about the modern money creation process. One of the financial system’s chief roles is to provide credit for worthy investments. Some very deep changes are happening to this system – changes that surprisingly few people are aware of. This column presents a quick sketch of the modern credit creation and then discusses the deep changes are that are affecting it – what we call the ‘other deleveraging’.
In the simple textbook view, savers deposit their money with banks and banks make loans to investors (Mankiw 2010). The textbook view, however, is no longer a sufficient description of the credit creation process. A great deal of credit is created through so-called ‘collateral chains’. We start from two principles: credit creation is money creation, and short-term credit is generally extended by private agents against collateral.
A Hong Kong hedge fund may get financing from UBS secured by collateral pledged to the UBS bank’s UK affiliate – say, Indonesian bonds. Figure 1. Figure 2. This brings us to the key policy point. Table 1. Defining inflation: remarkable differences between the ECB and the FED. From Merijn Knibbe I just watched an INET speech from Jorg Asmussen , member of the board of the ECB. He still seems to be confident that the ECB has the right definition of ´inflation´ and the right inflation target, despite everything which happened to house prices (excluded from their data…). The ECB definition is outdated and obsolete – not just my opinion but also the implicit opinion of the Fed.
Time to reblog an earlier post. As part of the research for a small paper I visited the websites the European Central Bank and the FED. First, the ECB (and this objective is ad nauseam repeated in ECB-speeches and again and again presented as the epitaph of ‘modern central banking’): “ Although the EC Treaty clearly establishes maintaining price stability as the primary objective of the ECB, it does not define what “price stability” actually means. And “Inflation occurs when the prices of goods and services increase over time.
Central Banking - Reading... Central Banking - curators... Resources. To sort... The political economy of currency unions. The Federal Reserve. BOE. BOJ. The ECB.