Download presentation

Presentation is loading. Please wait.

Published byKendall Brewington Modified over 4 years ago

1
Causes of Non-Fed Variables: M2 Determination zFederal Reserve controlled variables: H NON (open market operations), r D, r T. zThis chapter -- studies key causes of k, t, mmmf, e, and DL.

2
Key Causes of k = C/D zInterest rates (i), i k zBank Panics, Panic k zIllegal Activity, increases the demand for cash zFinancial Innovation towards transactions convenience (e.g. credit cards) (FI), FI k

3
Key Causes of t = T/D zInterest rates (i), i t zMarket Risk (Stock) ( S ), S t zUncertainty About the Economy ( Y ), Y t zSweep Programs (SWEEP), SWEEP t

4
Key Causes of mmmf = MMMF/D zInterest rates (i), i mmmf zMarket Risk (Stock) ( S ), S mmmf zUncertainty About the Economy ( Y ), Y mmmf

5
Key Causes of e = ER/D zInterest rates (i), i e zExpected Deposit Outflows (DOE) DOE k zDeposit Risk, or Uncertainty About Deposit Outflows ( D ) D e

6
Recent Developments: Increasing the e-Ratio zIncreased Vault Cash for Servicing ATMs. zEstablishment of Clearing Balances with the Federal Reserve, receives some return from the Fed. zFuture – Interest on excess reserves?

7
Key Causes of Discount Loans (DL) zInterest rates (i), i DL zThe Discount Rate (i DISC ), i DISC DL zFed Surveillance, Surveillance DL

8
Synthesizing the Analysis zEvent zWhat components of M2 determination are affected, and how? zHow does this change M2 (immediately and/or through bank loaning)?

9
M2 Determination: A Review M2 = (1 + k + t + mmmf) (H NON + DL) (k + r D + r T t + e) The money multiplier (m 2 )

10
How the Components Affect M2: A Review H NON M2 DL M2 r D M2 r T M2 k M2 t M2 mmmf M2 e M2

11
Example 1 -- An Increase in Interest Rates i k M2 i t M2 i mmmf M2 i e M2 i DL M2 Is there a money supply function?

12
Example 2 -- 1929-33 (Major Panic/Bank Failures) Panic k M2 Could the Federal Reserve have offset the situation (Discount Window, emergency loans)? DL M2

13
Example 3 -- 1934-41 (Keynesian Liquidity Trap) zFederal Reserve -- practicing active monetary policy. H NON M2

14
1934-41 -- Bank Behavior zBut, banks experience high deposit risk ( D ), expected deposit outflows (DOE), and very low interest rates desire to hold large amounts of excess reserves. D , DOE , i e M2 zOffsets the effect of policy.

Similar presentations

OK

Chapter 16 Determinants of the Money Supply. © 2004 Pearson Addison-Wesley. All rights reserved 16-2 Deriving a model of the money supply process Because.

Chapter 16 Determinants of the Money Supply. © 2004 Pearson Addison-Wesley. All rights reserved 16-2 Deriving a model of the money supply process Because.

© 2019 SlidePlayer.com Inc.

All rights reserved.

To make this website work, we log user data and share it with processors. To use this website, you must agree to our Privacy Policy, including cookie policy.

Ads by Google