The bank of agent h will increase its loan by a given

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The bank of agent H , will increase its loan by a given fraction. (See example in the course). Class 5 Monetary Policy
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Money Creation Money creation is done by Open Market Operations. The Central Bank creates some money by buying public securities to banks. It transforms public debt on the asset side of banks into reserves. Banks face excess reserves compared to the required reserve. They lend these new money to an agent H . Agent H put this new money in its bank : deposits will increase by the initial amount of increase in reserve. The bank of agent H , will increase its loan by a given fraction. (See example in the course). One can show that the increase in deposits Δ D after an increase Δ R of reserves by open market operation is Δ D = 1 r Δ R Class 5 Monetary Policy
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Money Creation Money creation is done by Open Market Operations. The Central Bank creates some money by buying public securities to banks. It transforms public debt on the asset side of banks into reserves. Banks face excess reserves compared to the required reserve. They lend these new money to an agent H . Agent H put this new money in its bank : deposits will increase by the initial amount of increase in reserve. The bank of agent H , will increase its loan by a given fraction. (See example in the course). One can show that the increase in deposits Δ D after an increase Δ R of reserves by open market operation is Δ D = 1 r Δ R where r is the coe¢ cient of required reserves. Class 5 Monetary Policy
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De°nition of Money M 0 : Base money or High-powered money is currency in circulation (Central Bank Notes coins) + Reserve held by banks at the central bank. M 1: a narrow monetary aggregate : currency in circulation plus overnight deposits held with MFIs (monetary and °nancial institutions Banks) and central government. (do not include reserves ! ) Class 5 Monetary Policy
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De°nition of Money M 0 : Base money or High-powered money is currency in circulation (Central Bank Notes coins) + Reserve held by banks at the central bank. M 1: a narrow monetary aggregate : currency in circulation plus overnight deposits held with MFIs (monetary and °nancial institutions Banks) and central government. (do not include reserves ! ) M 2: an intermediate monetary aggregate : M1 plus deposits redeemable at a period of notice of up to and including three months (i.e. short-term savings deposits) and deposits with an agreed maturity less than 2 years (i.e. short-term time deposits) held with MFIs and central government. Class 5 Monetary Policy
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De°nition of Money M 0 : Base money or High-powered money is currency in circulation (Central Bank Notes coins) + Reserve held by banks at the central bank. M 1: a narrow monetary aggregate : currency in circulation plus overnight deposits held with MFIs (monetary and °nancial institutions Banks) and central government. (do not include reserves ! ) M 2: an intermediate monetary aggregate : M1 plus deposits redeemable at a period of notice of up to and including three months (i.e. short-term savings deposits) and deposits with an agreed maturity less than 2 years (i.e. short-term time
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