Financial Deregulation and the LM Schedule
AbstractA model is presented to determine the effect on the slope of the LM schedule of full deregulation of bank's interest rates on demand deposits. The opportunity costs of holding a bank deposits is analyzed and explicit consideration is given to the marginal costs of intermediation. Two popular demand functions for money are assumed: the double log and the semi-log functions. It is shown that a strong presumption exists that the slope of the LM schedule is steepened around the fixed full employment real interest rate. Only an unusual increase in the interest elasticity of the demand for money sufficient to offset the impact of other variables could upset this presumption.
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Bibliographic InfoArticle provided by Eastern Economic Association in its journal Eastern Economic Journal.
Volume (Year): 18 (1992)
Issue (Month): 2 (Spring)
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More information through EDIRC
Bank; Deregulation; Intermediation; Money;
Find related papers by JEL classification:
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
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- Poole, William, 1970.
"Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model,"
The Quarterly Journal of Economics,
MIT Press, vol. 84(2), pages 197-216, May.
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- Michael C. Keeley & Gary C. Zimmerman, 1986. "Deposit rate deregulation and the demand for transactions media," Economic Review, Federal Reserve Bank of San Francisco, issue Sum, pages 47-62.
- Goldfeld, Stephen M. & Sichel, Daniel E., 1990. "The demand for money," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 1, chapter 8, pages 299-356 Elsevier.
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