Topic11-Fed_AAP_Rev_BW6 - Money Creation Monetary...

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Unformatted text preview: 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” 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) Larger proportion of their components pay interest 1 Topic Objectives 1 • Understand creation the process of 10 The Central Bank Balance Sheet money Define the major monetary aggregates Derive the money multiplier Discuss the instruments of monetary policy Understand the reasons for bank failures 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) 8 11 Commercial Bank Balance Sheet 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 shortnon- Assets Fed Reserves (R) Demand Deposits Vault Cash Savings Accounts Consumer Loans Business Loans Home Mortgages Can monetary policy somehow deliver Gov. Securities higher growth smoother business cycles? Liabilities Time Deposits CDs L.T. Debt Equity Other Securities 9 12 Money Creation: Fractional Reserve Banking (cnt.) cnt.) 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” 100% Required Reserves Assets Liabilities Reserves 100 100 New Deposit 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” 10% Required Reserves Assets Liabilities Reserves 10 100 New Deposit Loans 90 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 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? 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) 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 Will the economy collapse under such a system? 15 19 Money Creation: The Money Multiplier (cnt.) cnt.) 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) • 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- 20 20 23 Money Creation: The Money Multiplier (cnt.) cnt.) 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 • • 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 21 24 An MM Example 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 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 … many 25 Money Creation: The Money Multiplier (cnt.) cnt.) Reserve Requirements • 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 • 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 27 27 32 Money Creation: The Money Multiplier (concl.) concl.) M1 Currency-Deposit Ratio (c) Currency- 1 c B rr c Currency/Demand Deposits 1.4 Currency-Deposit Ratio • The money supply is affected by: 1.2 B: directly controlled by the Fed 1.0 Higher the base, higher the money supply, M 0.8 rr: low rr yields high M rr 0.6 Fed policy and bank behavior determine reserve-toand reserve- todeposit ratio What if legally required reserves are = 0? 0.4 0.2 c: lower c implies higher M 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 Determined by household and firm behavior 28 33 Example #2 • M1 and M2 Multipliers (m) Suppose that rr = 0.40 – 2i is the banks’ rr banks’ “demand” for reserves demand” If M1 & M2 Multipliers 12.5 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% 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 29 34 Money Creation: the Fed The Fed Funds Market • 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 • What are Fed funds? • Banks borrow to meet reserve requirements • Money Center banks v.s. periphery banks v.s. Plus many other regulatory and business functions • Impediments to Nationwide Banks The Fed is a “private” organization! private” 35 35 38 Instruments of Monetary Policy Figure 14.03 Location of the Federal Reserve Banks • 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 36 39 What Is An Open Market Operation? Instruments of Monetary Policy (cnt.) cnt.) • One of the functions of the BOG is to control the money supply • Open market operations give the Fed indirect control over M Banks may hold excess reserves or not lend when the rate declines Through the FOMC Federal Open Market Committee This may complicate the Fed’s job Fed’ • 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 • 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 Figure 14.10 Central Bank Independence and Inflation • 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 47 Inflation Targeting Topic Objectives 2 • • Understand the key debate on the conduct of monetary policy 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 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 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 higher growth smoother business cycles? The ECB, Japan, & the U.S. do not use Japan inflation targeting 48 45 In Contrast, U.S. Monetary Policy Broad Policy Issues • • Central bank independence Monetary policy costs come 1st, benefits come later This is the Humphrey-Hawkins Act of 1978 Humphrey- • Single/multiple targets for the central bank • • Rules vs. discretion One of the class presentations 46 By law the Fed’s job is to: Fed’ 1. keep inflation low & steady 2. promote maximum employment 3. promote financial stability The Fed tries to accomplish these goals by controlling the fed funds rate fed 49 Monetary Policy (concl.) concl.) Low Inflation • 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! • • 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 51 51 54 Low Inflation (concl.) concl.) The Fed’s Policy Dilemma: Fed’ Two Targets, One Instrument • 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 Target Inflation Most of the time the Ms were outside the target zones • The Fed returned to interest rate targeting by the middle 80s U “Natural” Rate of Unemployment 52 55 Inflation Targeting Only: One Target, One Instrument Monetary Policy Since 1970 FF & Other Rates 25 DFF DGS7 20 Target Inflation 15 U 10 “Natural” Rate of Unemployment 5 0 1/ 53 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 Long-Run Neutrality (cnt.) cnt.) Long- Understanding Monetary Policy • To understand the issues and difficulties of monetary policy we need to discuss the “neutrality” debate neutrality” • 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 57 57 60 Economic Growth: The Neutrality Debate Long-Run Neutrality Long- • 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 non- • “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.” Money Neutrality money affects only only nominal price changes and the inflation premium in interest rates (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 58 Two Flavors of Neutrality 61 Two Flavors of Neutrality • The debate of short-run neutrality is not shortnot settled 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 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- Short-Run Non-Neutrality (cnt.) cnt.) 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 • One set of stories rely on market failure Mainly in the short run The “Keynesian” approach Keynesian” • Two of these stories follow The “Phillips curve” curve” 64 64 Figure 12.01: The Phillips Curve and the U.S. Economy During the 1960s 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 Can you really reduce U by 3% by increasing by 5%? 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 66 69 Short-Run Non-Neutrality (cnt.) cnt.) ShortNon- 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… • 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 • Theories have tried to rationalize the Phillips curve: Burst of money growth (inflation) results in economic boom, unemployment, GDP 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 The real effects do not persist! 67 70 Keynesians: Exploit Non-Neutrality Non- 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) • 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 71 71 Short-Run Non-Neutrality (cnt.) cnt.) ShortNon- 78 Classicals: Don’t Exploit Non-Neutrality Classicals: Don’ Non- • Rational Confusion (not a market failure): Prices adjust and markets clear, but • Classical response 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 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 72 Does It Matter Which Version of Neutrality Is Correct? 79 Algebraic Representation • Simple-minded Keynesian Phillips curve: Simple- 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 _ _ 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 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% Hardly! Figure 12.2: Inflation and Unemployment in the United States, 1970-2005 58 52 81 81 55 46 49 40 43 37 34 28 31 25 22 16 19 10 13 4 7 1 2.0% 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 trade- A little more likely! Leaning against the wind 82 Figure 12.7: Expectations-Augmented Phillips Curve in the United States, 1970-2005 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” 83 97 The Fed’s Behavior Fed’ The Fed & Interest Rates • 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 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 06 01 01 07 /07 07 01 02 02 08 02 03 /03 03 04 08 04 08 04 05 09 05 05 06 /06 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/ 1/ 5/ 5/ 9/ 9/ 1/ 5/ 1/ 9/ 5/ 1/ 5/ 9/ 1/ 5/ 9/ 9/ 1/ 1/ 5/ 9/ 5/ 1/ 98 98 101 The Taylor Rule • The “Taylor Rule”: Rule” Real Interest Rates in Recessions A rule-of-thumb for setting the Fed Funds rate: rule- ofiFF = + r (=0.02) + 0.5y +0.5( - T) Rec81 (1 Year; quarters) Rec07 8.0% Ground 0 Mean 7.0% P1Sd 6.0% where y Y Y f GDP Y f Yf is full employment GDP The rule targets T; the inflation target M1Std 5.0% 4.0% 3.0% 2.0% 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- to- 1.0% 0.0% -2 0 2 4 6 8 10 12 14 16 -1.0% -2.0% 99 102 The Taylor Rule (cnt.) cnt.) • The “Taylor Rule” with T = 2.0%: Rule” Real Interest Rates in Recessions (10Y; quarters) Assumed real rate = 2.0% Rec81 Rec07 Ground 0 Mean P1Sd M1Std 8.0% 7.0% 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% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -2 100 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% Real Interest Rates in Recoveries (10Y Tb; quarters) 6.0% Recov91 Recov02 5.0% Mean P1Sd 4.0% M1Std 4.0% 3.0% 3.0% 2.0% 2.0% 1.0% 1.0% 0.0% 0.0% -2 0 2 4 6 8 10 12 14 16 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 -1.0% 104 107 Promote Maximum Employment Real Interest Rates in Recoveries (1Y Tbills; quarters) 5.0% • The theory of economic growth makes no mention of monetary policy 4.0% And with good reason 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% • 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? 105 109 What Is Good Monetary Policy? BAA Premium in Recoveries (quarters) 7.0% Recov91 Recov02 6.0% Mean P1Sd 5.0% M1Std • 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- 4.0% • Mildly countercyclical monetary policy over the business cycle 3.0% 2.0% Where short-term non-neutrality comes in shortnon1.0% • The “Taylor rule” codifies such a policy rule” 0.0% 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 106 110 Financial Stability Figure 14.2b Monetary Variables in the Great Depression • 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 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 116 116 Figure 14.2a Monetary Variables in the Great Depression 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 117 120 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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This note was uploaded on 03/02/2010 for the course BUAD 350 taught by Professor Safarzadeh during the Spring '07 term at USC.

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