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Money, reserves, and the transmission of monetary policy: Does the money multiplier exist?

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  • Carpenter, Seth
  • Demiralp, Selva

Abstract

With the use of non-traditional policy tools, the level of reserve balances has risen in the US from roughly $20 billion before the financial crisis to well past $1 trillion. The effect of reserve balances in macroeconomic models often comes through the money multiplier, affecting the money supply and the bank lending. In this paper, we document that the mechanism does not work through the standard multiplier model or the bank lending channel. If the level of reserve balances is expected to have an impact on the economy, it seems unlikely that a standard multiplier story will explain the effect.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 34 (2012)
Issue (Month): 1 ()
Pages: 59-75

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Handle: RePEc:eee:jmacro:v:34:y:2012:i:1:p:59-75

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Web page: http://www.elsevier.com/locate/inca/622617

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Keywords: Monetary transmission mechanism; Money multiplier; Lending channel;

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References

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Cited by:
  1. Stefan Behrendt, 2013. "Monetary Transmission via the Central Bank Balance Sheet," Global Financial Markets Working Paper Series 49-2013, Friedrich-Schiller-University Jena.
  2. Carpenter, Seth & Demiralp, Selva & Eisenschmidt, Jens, 2013. "The effectiveness of the non-standard policy measures during the financial crises: the experiences of the federal reserve and the European Central Bank," Working Paper Series 1562, European Central Bank.
  3. Selva Demiralp & Kevin Hoover & Stephen Perez, 2014. "Still puzzling: evaluating the price puzzle in an empirically identified structural vector autoregression," Empirical Economics, Springer, vol. 46(2), pages 701-731, March.
  4. Ho Dong Ching, 2011. "Endogenous Money - A Structural Model of Monetary Base," Occasional Papers, South East Asian Central Banks (SEACEN) Research and Training Centre, number occ52, June.
  5. Edward Nelson, 2011. "Friedman's monetary economics in practice," Finance and Economics Discussion Series 2011-26, Board of Governors of the Federal Reserve System (U.S.).
  6. McLeay, Michael & Radia, Amar & Thomas, Ryland, 2014. "Money creation in the modern economy," Bank of England Quarterly Bulletin, Bank of England, vol. 54(1), pages 14-27.

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