Topic11-Fed_AAP_Rev

Topic11-Fed_AAP_Rev - Monetary Policy & the Fed The...

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Unformatted text preview: Monetary Policy & the Fed The Process of Money Creation, The Conduct of Monetary Policy Topic 11 (Text: Ch. 12, pp. 434-448; Ch. 14; Pres Topic #5) 1 Topic Objectives 1 • Understand creation the process of money Define the major monetary aggregates Derive the money multiplier Discuss the instruments of monetary policy Understand the reasons for bank failures 8 Topic Objectives 2 • Understand the key debate on the conduct of monetary policy Examine theories and evidence Study policy implications: rules vs. discretion What sorts of public policies would insure that the Fed keeps inflation low? Explore short-run monetary non-neutrality shortnonCan monetary policy somehow deliver higher growth smoother business cycles? 9 Money Creation: Monetary Aggregates • Currency held by the public (C) • Monetary Base (B) = C + domestic bank reserves (R) • M1 = C + checkable deposits (D) • M2 = M1 + long-term deposits long• Broader aggregates are less “liquid” liquid” Larger proportion of their components pay interest 10 10 The Central Bank Balance Sheet Balance Sheet of the Fed Assets Liabilities • Claims on Government • Currency (C) Gov Bonds • Reserves of Banks (R) • Claims on Foreigners • Other Liabilities International Reserves (+gold) •Other (were minor) Claims Monetary Base (C + R = B) 11 Commercial Bank Balance Sheet Assets Liabilities Fed Reserves (R) Demand Deposits Vault Cash Savings Accounts Consumer Loans Business Loans Home Mortgages Gov. Securities Time Deposits CDs L.T. Debt Equity Other Securities 12 Banks and Leverage • Banks are highly levered They make money out of “lending” money and lending” providing financial expertise The Basel Accord results in around 10% holding of “reserves” reserves” Senior debt & equity If asset values dip by a lot, banks will go bankrupt But liquidity and contagion are big issues as well • “Every banking system is one good recession away from a crisis” crisis” 13 13 Money Creation: Fractional Reserve Banking Functions of the Fed: • Create and control domestic reserves In interaction with the financial markets it is responsible for the supply of money • Regulate the banking system • Responsible for the payments system 14 Money Creation: Fractional Reserve Banking (cnt.) cnt.) Functions of commercial banks: 1. Match borrowers and lenders 1. 2. Pool risks; commercial, liquidity 3. Create money • 100% reserve banking: Banks are required to hold all deposits as reserves (R = D ) Banks do not affect money supply (M1 = B = C + R) Will the economy collapse under such a system? 15 Money Creation: Fractional Reserve Banking (cnt.) cnt.) 100% Required Reserves Assets Liabilities Reserves 100 100 New Deposit 10% Required Reserves Assets Liabilities Reserves 10 100 New Deposit Loans 90 16 16 Money Creation: Fractional Reserve Banking (cnt.) cnt.) • Fractional reserve banking: Banks are required to hold a fraction of deposits as reserves (rqr) We label the ratio banks actually hold rr actually R/D rr (this is a definition) Is it also the case that R/D = rqr? rqr? 17 Money Creation: The Money Multiplier • Under the fractional-reserve system, $1 of fractional$1 cash injected by the Fed will increase as it propagates through the banking system The first bank will receive it as a $1 deposit $1 It keeps rr proportion of it as reserves and rr lends out $(1 - rr) lends $(1 19 Money Creation: The Money Multiplier (cnt.) cnt.) The “next” bank then receives a deposit of next” $(1 - rr) It also keeps rr proportion of it as reserves and rr it lends out lends $(1 - rr)(1 - rr) 20 20 Money Creation: The Money Multiplier (cnt.) cnt.) • This process continues until all of the funds injected by the Fed are held as reserves by the banking system • $1 injected by the Fed becomes: 1 + (1-rr) + (1-rr)2 + (1-rr)3 + … = 1/rr (1(1(1deposits 21 The Money Multiplier Stages Deposit Loan Cumulative OMO $1.00 $0.80 $1.00 1 $0.80 $0.64 $1.80 2 $0.64 $0.51 $2.44 3 $0.51 $0.41 $2.95 4 $0.41 $0.33 $3.36 5 $0.33 $0.26 $3.69 6 $0.26 $0.21 $3.95 $0.00 $5.0022 … many Money Creation: The Money Multiplier (cnt.) cnt.) • Since 1/rr > 1, the banking system creates money Does it create wealth? • This assumes people deposit all the money they get • In fact, they hold some of it as currency The currency-deposit ratio is (c); C/D = c currency- 23 23 The Money Multiplier (cnt.) cnt.) • • We saw that M1 = C + D, and B = C + R Use these to compute the M1 “multiplier”: multiplier” M1 = m 1 B where m is the money multiplier m1 = (1 + c)/(rr + c) Note that if c = 0, m1 = 1/rr • In general a money multiplier is defined as Mx/B = mx 24 An MM Example • Let rr = 5% & c = 45% rr 1. If the Fed conducts an OMO for $10M, by how much do M, DD, C, & R increase? DD B = $10 1 c B rr c 1 c M 1 B rr c M1 25 Money Creation: The Money Multiplier (cnt.) cnt.) • As in the example, most of the increase in B (the Fed’s OMO) becomes currency Fed’ • The Fed converts reserves to currency on demand 27 27 Money Creation: The Money Multiplier (concl.) concl.) M1 1 c B rr c • The money supply is affected by: B: directly controlled by the Fed Higher the base, higher the money supply, M rr: low rr yields high M rr Fed policy and bank behavior determine reserve-toand reserve- todeposit ratio What if legally required reserves are = 0? c: lower c implies higher M Determined by household and firm behavior 28 Example #2 • Suppose that rr = 0.40 – 2i is the banks’ rr banks’ “demand” for reserves demand” If c = 0.40, P = 1.0 & fixed, and B = 60 0.40 1.0 60 L( ) = 0.50Y – 10i i = 10%, what are R/D, m, M, C, D ? 10% 29 Reserve Requirements • For net transaction accounts in 2004, the first $6.6 million will be exempt from reserve requirements up from $6.0 million in 2003 • A 3% reserve ratio will be assessed on net transaction accounts over $6.6 million up to and including $45.4 million up from $42.1 million in 2003 • A 10% reserve ratio will be applied above $45.4 million 32 32 Currency-Deposit Ratio (c) CurrencyCurrency/Demand Deposits 1.4 Currency-Deposit Ratio 1.2 1.0 0.8 0.6 0.4 0.2 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 n- n - n- n - n- n- n - n- n - n - n - n - n- n - n - n- n - n- n- n- n- n - n- n- n- nJa Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja Ja 33 M1 and M2 Multipliers (m) M1 & M2 Multipliers 12.5 10.0 7.5 5.0 M2 Multiplier M1 Multiplier 2.5 0.0 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 n - n- n - n- n - n- n- n- n- n- n- n- n- n- n - n- n- n - n- n - n- n - n- n- n - nJ a J a J a J a J a J a J a J a Ja J a J a J a J a J a J a J a J a J a J a J a J a J a J a Ja J a J a 34 Money Creation: the Fed • The Federal Reserve Bank (FRB) controls the money supply • The system is made up of: Chairman Board of Governors (BOG) Member Banks, and the FOMC Plus many other regulatory and business functions The Fed is a “private” organization! private” 35 35 Figure 14.03 Location of the Federal Reserve Banks 36 What Is An Open Market Operation? • One of the functions of the BOG is to control the money supply Through the FOMC Federal Open Market Committee • Creates bank reserves by purchasing assets Used to be exclusively Treasury Bills, Notes, exclusively and Bonds It essentially writes checks on itself that can only be redeemed for U.S. currency 37 The Fed Funds Market • What are Fed funds? • Banks borrow to meet reserve requirements • Money Center banks v.s. periphery banks v.s. • Impediments to Nationwide Banks 38 38 Instruments of Monetary Policy • Open-market operations: Open The Fed buys/sells government bonds from/to the public Its payments directly increase B and therefore M • Reserve requirements: An increase in rqr decreases M through the multiplier m rqr If it was binding at the time! Cannot be used under current regulation • Discount rate: The rate at which the Fed lends to banks that borrow reserves When “the interest rate” is decreased, banks borrow rate” more, and B and M both increase No longer used by the Fed; until very recently very 39 Instruments of Monetary Policy (cnt.) cnt.) • Open market operations give the Fed indirect control over M Banks may hold excess reserves or not lend when the rate declines This may complicate the Fed’s job Fed’ • Friedman advocated the exclusive use of open market operations Fed’s current operating procedures do just that Fed’ Wasn’t always so Wasn’ Is not at the moment! not Isn’t so everywhere Isn’ 40 Topic Objectives 1 • We have now completed the first part of the objectives: Define the major monetary aggregates Derive the money multiplier Discuss the instruments of monetary policy Understand the reasons for bank failures 41 41 Topic Objectives 2 • Understand the key debate on the conduct of monetary policy Examine theories and evidence Study policy implications: rules vs. discretion What sorts of public policies would insure that the Fed keeps inflation low? Explore short-run monetary non-neutrality shortnonCan monetary policy somehow deliver higher growth smoother business cycles? 45 Broad Policy Issues • Central bank independence Monetary policy costs come 1st, benefits come later • Single/multiple targets for the central bank • Rules vs. discretion One of the class presentations 46 Figure 14.10 Central Bank Independence and Inflation 47 47 Inflation Targeting • 22 countries have turned to inflation inflation targeting as the single goal of their central single Bank New Zealand, Canada, Australia, the U.K., Sweden, have been doing this for 10 years Inflation declined Inflation volatility declined Inflation “inertia” declined inertia” Expectations of inflation declined No negative effects on economic activity Their output growth improved and its volatility declined The ECB, Japan, & the U.S. do not use Japan inflation targeting 48 In Contrast, U.S. Monetary Policy • By law the Fed’s job is to: Fed’ 1. keep inflation low & steady 2. promote maximum employment 3. promote financial stability This is the Humphrey-Hawkins Act of 1978 Humphrey- • The Fed tries to accomplish these goals by controlling the fed funds rate fed 49 Monetary Policy (concl.) concl.) • There is a serious problem with the Fed’s Fed’ mandate. Rearrange the money growth equation: P/P + Y/Y = M/M + V/V • If both inflation and real growth on the LHS depend on monetary policy, then there aren’t aren’ enough instruments to control both P/P and Y/Y If Y/Y cannot be influenced by monetary policy, then the Fed can’t fulfill its obligations either can’ Ignoring lags! • 51 51 The Fed’s Policy Dilemma: Fed’ Two Targets, One Instrument Target Inflation U “Natural” Rate of Unemployment 52 Inflation Targeting Only: One Target, One Instrument Target Inflation U “Natural” Rate of Unemployment 53 Low Inflation • How can the Fed achieve low and stable inflation? • Monetarists’ recommendation to target Monetarists’ monetary aggregates was implemented in the Fall of 1979 Paul Volcker (1979) • It was thought that the Fed had done a bad job figuring out what the right interest rate right is, and that it reacted too slowly Political issues 54 54 Low Inflation (concl.) concl.) • Method: control M1 & M2 through OMO Goal was accomplished Created a sharp recession from the middle of 1981 Created high volatility in interest rates Main difficulties: forecasting velocity and the growth rates of the Ms Most of the time the Ms were outside the target zones • The Fed returned to interest rate targeting by the middle 80s 55 Monetary Policy Since 1970 FF & Other Rates 25 DFF DGS7 20 15 10 5 0 1/ 70 1/ 1/ 72 1/ 1 1/ 4 /7 1 1/ 6 /7 1/ 78 1/ 80 1/ 1/ 82 1/ 1/ 1/ 84 1/ 86 1/ 1/ 88 1/ 1/ 1/ 90 1/ 1/ 92 1/ 1/ 94 1/ 1 1/ 6 /9 1 1/ 8 /9 1/ 00 1/ 02 1/ 1/ 04 1/ 1/ 1/ 06 1/ 08 1/ 1/ 56 Understanding Monetary Policy • To understand the issues and difficulties of monetary policy we need to discuss the “neutrality” debate neutrality” 57 57 Economic Growth: The Neutrality Debate • The technical term for this issue (debate) is called money neutrality money • When a change in the money supply (M) affects a real quantity (Y or r), money is said to be non-neutral nonMoney Neutrality money affects only only nominal price changes and the inflation premium in interest rates 58 Two Flavors of Neutrality The neutrality debate has been and is intense • If money is neutral, then the Fed cannot cannot influence real economic growth • The debate of long-run neutrality is more or longless settled Money is neutral in the long run 59 Long-Run Neutrality (cnt.) cnt.) Long• Long-run change in output (growth) is driven by Longchanges in technology and factor inputs, and not technology factor by more or less money growth • Changes in money growth will show up as changes money in the long-run inflation rate long Long-run neutrality of money is supported well by Longevidence (see topic #10) P/P = M/M - Y/Y • Classical economists have long articulated longlongrun neutrality Even most Keynesians believe in long-run price longflexibility and hence in neutrality in the long run 60 60 Long-Run Neutrality Long• “Money… is none of the wheels of trade: Money… it is the oil which renders the motion of the wheels more smooth and easy.” easy.” (David Hume) • Given that money “serves only as a method of rating or estimating” (Hume) estimating” labor and commodities, expect changes in money to be neutral units changes 61 Two Flavors of Neutrality • The debate of short-run neutrality is not shortnot settled Most economists agree that there is some nonsome nonneutrality BUT, there is a lot of disagreement about The degree of non-neutrality nonThe duration of non-neutrality nonThe causes of non-neutrality nonWhether or not policy should exploit non-neutrality noneven if it exists even 62 Short-Run Non-Neutrality ShortNon• Few economists would now argue that now money is neutral in the short run They may not agree on the definition of “short run” run” • Original evidence for possibly long-term longnon-neutrality was presented by A. W. nonPhillips (1958) • Apparent negative relation between inflation and unemployment The “Phillips curve” curve” 64 64 Figure 12.01: The Phillips Curve and the U.S. Economy During the 1960s Can you really reduce U by 3% by increasing by 5%? 66 Short-Run Non-Neutrality (cnt.) cnt.) ShortNon• To take this version of the Phillips curve seriously is the same as accepting that consumers are dumb, ignorant and/or dumb ignorant irrational irrational We all know people like that but… but… • Theories have tried to rationalize the Phillips curve: Burst of money growth (inflation) results in economic boom, unemployment, GDP The real effects do not persist! 67 Short-Run Non-Neutrality (cnt.) cnt.) ShortNon• One set of stories rely on market failure Mainly in the short run The “Keynesian” approach Keynesian” • Two of these stories follow 68 68 Short-Run Non-Neutrality (cnt.) cnt.) ShortNon• Keynesian sticky-price models (market failure): stickyAssume P sticky • Recall money demand function: Md/P = L(i, Y) -+ (Ms/P) i r C, I This is possible only to the extent that P doesn’t adjust! doesn’ • Credit channel: When i falls ( d ), banks borrow reserves and lend more; indebted firms find their debt cost decrease and credit-worthiness increase, creditand borrow more to invest 69 Short-Run Non-Neutrality (cnt.) cnt.) ShortNon• Sticky-wage models (market failure): StickyContracts get negotiated in $s for an expected real wage expected e w1 W1 Pe 1 If the Fed generates a surprise inflation, so that P P , then w1 w1 , and the wage employees 1 1 get less than what they expected or bargained for. This: e e increases the demand for labor expands output and GDP at the cost of a little higher inflation GDP but this doesn’t make employees better off, unless there doesn’ unless is already more than frictional unemployment, because they are tricked into working for lower wages tricked 70 Short-Run Non-Neutrality (cnt.) cnt.) ShortNon• An alternative set of stories rely on rationality but limited information Mainly in the short run The “Neo-Classical” approach Neo- Classical” • One of these stories follows We’ll discuss another when we talk about We’ Business Cycles (T.13) 71 71 Short-Run Non-Neutrality (cnt.) cnt.) ShortNon• Rational Confusion (not a market failure): Prices adjust and markets clear, but Imperfect information causes producers to confuse general price increases with relative price increases They respond with increased production Does not make producers better off because they are tricked into producing more tricked • Evidence shows that GDP growth is correlated with GDP M1 & M2 from 2 quarters earlier With short term neutrality there shouldn’t be any shouldn’ correlation like that 72 Does It Matter Which Version of Neutrality Is Correct? It matters very much • If the non-neutrality is a result of market nonfailure, then government should intervene to Help fix the consequences of the market failure Take steps to attenuate the market failure • If the non-neutrality is a result of rational nondecision-making, then government should decisionnot intervene not Could always improve the information available to the market 73 Keynesians: Exploit Non-Neutrality Non• Keynesians argue that the inflationinflationunemployment tradeoff should be exploited Not necessarily only for the short run only AT THE VERY LEAST, countercyclical monetary policy! M growth i (at least during recessions) and growth i during booms 78 78 Classicals: Don’t Exploit Non-Neutrality Classicals: Don’ Non• Classical response Evidence on negative tradeoff not robust Countercyclical policy may not help much Can the Fed be trusted to tighten in time? Friedman, Phelps: vertical Long Run Phillips curve is Exploitation in the long run is not possible not Lucas: With rational expectations, only unanticipated changes in money matter. Cannot fool people all the time with surprises 79 Algebraic Representation • Simple-minded Keynesian Phillips curve: Simple_ _ u u You can unemployment by inflation! Like “found growth” growth” • Rational expectations version _ u u e Can’t fool people for long; you get the same Can’ unemployment (or worse) and more inflation! P-curve is vertical ex-ante ex80 Figure 12.2: Inflation and Unemployment in the United States, 1970-2005 Hardly! 81 81 Figure 12.2: Inflation and Unemployment in the United States, 1970-2005 A little more likely! 82 Figure 12.7: Expectations-Augmented Phillips Curve in the United States, 1970-2005 83 Stylized Reaction to Monetary Expansion Stylized Reaction to Monetary Expansion 6.0% G(Money) 5.5% G(RGDP2) Inflation2 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 58 55 52 46 49 40 43 34 37 28 31 25 22 16 19 10 13 4 7 1 2.0% 84 84 Policy: Summary • Keynesians believe the evidence, and advocate exploitation of the inflationinflationunemployment tradeoff • Classical economists feel it is futile and possibly wrong to try to exploit nonnonneutrality even if it exists • The Fed behaves as if it believes there is a short-run trade-of (Phillips Curve) but shorttradenot a long run trade-off tradeLeaning against the wind 86 The Fed’s Behavior Fed’ • The current stance of the Fed is to provide enough information about its decisions and its outlook (relevant to its future decisions) so that market expectations do not become unstable Providing information Gaining credibility • What sort of “rule” does the Fed use? rule” 97 The Fed’s Behavior Fed’ • To reduce the inflation rate, in 1979 Volker moved to a system that target directly the growth rate of the money supply, M1 and M2 This was long-advocated by monetarists long- Worked well though the Fed mostly missed its targets Very high volatility of interest rates • They tried variations on the theme but eventually settled on controlling the fed funds rate fed 98 98 The Taylor Rule • The “Taylor Rule”: Rule” A rule-of-thumb for setting the Fed Funds rate: rule- ofiFF = + r (=0.02) + 0.5y +0.5( - T) where y Y Y f GDP Y f Yf is full employment GDP The rule targets T; the inflation target Mildly countercyclical Raises FF rate if Y is above trend & is above T Uses 2% as the real rate 2% It is not a quarter-to-quarter rule! not quarter- to99 The Taylor Rule (cnt.) cnt.) • The “Taylor Rule” with T = 2.0%: Rule” Assumed real rate = 2.0% Inflation Output Gap 2.0% 0.0% 2.0% -3.0% 2.0% +2.0% 4.0% 0.0% FFR Implied Real Rate 4.0% 2.0% 2.5% 0.5% 5.0% 3.0% 7.0% 3.0% 100 The Fed & Interest Rates FF & Other Rates w/Inflation Expectations 7.0 DFF DGS3MO DGS7Y E(Infl)-1 Y 6.0 5.0 4.0 3.0 2.0 1.0 0.0 01 06 01 01 07 /07 02 02 07 03 04 02 03 /03 04 08 04 05 08 05 08 05 06 /06 09 1/ 1/ 1/ 1/ 1/ 1 1/ 1/ 1/ 1 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1/ 1 1/ 1/ 9/ 5/ 1/ 9/ 5/ 1/ 9/ 5/ 9/ 9/ 1/ 1/ 1/ 5/ 5/ 9/ 5/ 1/ 5/ 9/ 9/ 5/ 1/ 1/ 101 101 Real Interest Rates in Recessions Rec81 (1 Year; quarters) Rec07 8.0% Ground 0 Mean 7.0% P1Sd 6.0% M1Std 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -2 0 2 4 6 8 10 12 14 16 -1.0% -2.0% 102 Real Interest Rates in Recessions (10Y; quarters) Rec81 Rec07 Ground 0 Mean P1Sd M1Std 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -2 0 2 4 6 8 10 12 14 16 103 BAA Premium in Recessions (quarters) 8.0% Rec81 Rec07 Ground 0 Mean P1Sd M1Std 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -2 0 2 4 6 8 10 12 14 16 104 Real Interest Rates in Recoveries (1Y Tbills; quarters) 5.0% 4.0% 3.0% 2.0% Recov91 Recov02 1.0% Mean P1Sd M1Std 0.0% 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 -1.0% 105 BAA Premium in Recoveries (quarters) 7.0% Recov91 Recov02 6.0% Mean P1Sd 5.0% M1Std 4.0% 3.0% 2.0% 1.0% 0.0% 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 106 Real Interest Rates in Recoveries (10Y Tb; quarters) 6.0% Recov91 Recov02 5.0% Mean P1Sd 4.0% M1Std 3.0% 2.0% 1.0% 0.0% 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 -1.0% 107 Promote Maximum Employment • The theory of economic growth makes no mention of monetary policy And with good reason • Bad monetary policy, financial market turmoil, high inflation can certainly cripple economic growth and lead to low employment • But is there something that economic policy can do to improve real growth and thereby maximize employment? 109 What Is Good Monetary Policy? • Low but positive inflation target Allow enough money growth for real growth No gain from creating high inflation Where long-term neutrality comes in long- • Mildly countercyclical monetary policy over the business cycle Where short-term non-neutrality comes in shortnon- • The “Taylor rule” codifies such a policy rule” 110 Financial Stability • What about the financial stability goal of the Fed? How to accomplish that? The Fed has a lot of regulatory responsibility, which it exercises Examines bank holding companies, exerts control on bank behavior, sets stock margins Has to speak up aggressively in a crisis 9/11, now, many others now Good monetary policy is still the key 115 115 Figure 14.1 The Currency-Deposit and the Reserve-Deposit Ratios in the Great Depression 116 116 Figure 14.2a Monetary Variables in the Great Depression 117 Figure 14.2b Monetary Variables in the Great Depression 118 118 Systemic Bank Failures • Banks cannot satisfy simultaneous withdrawal demands from everyone (Why?) This happens when depositors lose confidence in banks As people withdraw deposits, c Banks hold excess reserves, so rr rr m and hence the money supply A precipitous drop in m and M occurred during the great depression • Establishment of the Federal Deposit Insurance Corporation (FDIC) helped increase confidence in banks, and it has reduced bank failures Moral Hazard issues SL crisis, many international banking crises 119 Bank Failures • Individual banks fail mainly because of fraud • But the financial crises in the last couple of decades involved massive bank failures Banks are highly levered 10% - 13% equity only Banks have a maturity mismatch between their assets and liabilities Liquid and short term liabilities Illiquid and long-term assets long- If enough loans can no longer pay, a bank can easily go under 120 Banking Crises Are Costly Costs of Recent Banking Crises as % of GDP (2003) Phillipines 97-now Taiwan 97-98 Malaysia 97-now Korea 97-now Thailand 97-now Indonesia 97-now Venezuela 94-95 Mexico 94-97 S weden 91 Hungary 91-now Finland 91-94 Czech Rep. 91-now Bulgaria 95-97 Japan 91-now Macedonia 93-94 China 90-99 Paraguay 95-99 Equador 98-now Bangladesh 80Malaysia 85-88 Tanzania 88-now Norway 87-93 S pain 77-85 Israel 77-83 Turkey 00-now Kuwait 90-91 US A 84-91 Phillipines 81-87 Venezuella 84Uruguay 81-84 Chile 81-86 Argentina 80-81 0 10 20 30 40 50 60 121 121 Glossary of Notation C R B D M1 rr rqr c mx Currency Reserves Monetary Base (= C + R) Deposits Currency + Deposits (= C + D) Reserve ratio held by banks Required reserves by the Fed Currency-to-Deposit ratio Currency- toMoney multiplier, one for each Mx 122 THE END 123 ...
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