Lecture 16 -- Money demand

Lecture 16 -- Money demand - ECO 320L, Fall 2010, Professor...

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ECO 320L, Fall 2010, Professor Beatrix Paal updated 9/29/2010 12:21 PM Lecture 16: Money Demand, The quantity theory of money 1 Lecture 16 Money Demand Last time definition, functions, and measurement of money ( Chapter 7.1 ) money supply ( Chapter 7.1 and 14.1 ) Today quick review of money multiplier ( Chapter 14.1 and 14.2 ) money demand ( Chapter 7.2 and 7.3 ) the quantity theory of money Next time aggregation in the asset market ( Chapter 7.4 ) What determines the money multiplier? gG : currency-deposit ratio – households’ and firms’ choice of how to hold their money res: reserve-deposit ratio – banks’ choice of how much reserves to hold against deposits b mm . is choice of the private sector b money supply is influenced not just by the Fed, but also the private sector how does mm depend on cu and res ? if gG ↑ then ±± ↓ – if the non-bank public holds more of its money in the form of currency, then less of it is available for the money multiplication process if ²³´ ↑ then ±± ↓ – if the banking sector holds higher reserves, then less is available for lending out and for further multiplication 2 M CU DEP mm BASE CU RES + = = + 1 1 CU cu DEP CU RES cu res DEP DEP + + = = = + + 1 1 1 cu res res res mm cu res cu res + - + - = = + + + PDF Created with deskPDF PDF Writer - Trial :: http://www.docudesk.com
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ECO 320L, Fall 2010, Professor Beatrix Paal updated 9/29/2010 12:21 PM Lecture 16: Money Demand, The quantity theory of money 2 ABC7 Figure 14.3 Currency–deposit ratio and the reserve–deposit ratio Source: Authors calculations based on data from Federal Reserve Bank of St. Louis FRED database at research.stlouisfed.org/fred2 ; variables are currency CURRSL, deposits M2SL CURRSL; reserves ADJRESSL. ABC7 Figure 14.4 Monetary variables in the financial crisis of 2008 Source: Authors calculations based on data from Federal Reserve Bank of St. Louis FRED database at research.stlouisfed.org/fred2 ; variables are currency CURRSL, deposits M2SL CURRSL; reserves ADJRESSL. PDF Created with deskPDF PDF Writer - Trial :: http://www.docudesk.com
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ECO 320L, Fall 2010, Professor Beatrix Paal updated 9/29/2010 12:21 PM Lecture 16: Money Demand, The quantity theory of money 3 Money demand L D is the demand for real balances: Just like M S , it is also a stock variable, measured at a point in time it is best modeled as a real variable: the desired real value of money balances in
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This note was uploaded on 10/25/2010 for the course ECO 320L taught by Professor Kendrick during the Fall '10 term at University of Texas at Austin.

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Lecture 16 -- Money demand - ECO 320L, Fall 2010, Professor...

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