11-03-29-Analysis of a Bank Crisis-Revised-a

11-03-29-Analysis of a Bank Crisis-Revised-a - Analysis Of...

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Analysis Of A Banking Crisis March 29, 2011
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Money-Supply Analysis When a shock hits the domestic money- supply system, we record the initial effects in red . This includes all cheque-clearing, such that balance sheets balance. In response various actors make further transactions. These are shown in green. The new equilibrium is shown in blue .
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Analysis of a Bank Crisis The starting point for analyzing a Bank Crisis is that the Public wishes to increase exogenously its Currency Holdings. (C 0 Goes Up By 1.) Banks find themselves short of Reserves. The Public finds that since its Deposits are down, it is holding too much Currency. In the new equilibrium the Money Supply and Deposits are down, Currency is up.
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Effect Of C 0 On B The Next Slide Shows The Entries On The Bank Of Canada’s Balance Sheet, Once The Cheques Have Cleared. The Key Point Is That, Although The Composition Of The Monetary Base Has Shifted Towards Currency And Away From Bank Reserves, Its Size Has Not Been Altered.
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Bank of Canada assets liabilities Gov’t Bonds Currency Deposits 1. Banks 2. Gov’t +1 -1
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This note was uploaded on 07/16/2011 for the course ECON 2154 taught by Professor Boyer during the Winter '10 term at UWO.

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11-03-29-Analysis of a Bank Crisis-Revised-a - Analysis Of...

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