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The E-Monetary Theory

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  • Ngotran, Duong

Abstract

Using the sparse grid, we solve a DSGE model where there are two types of electronic money: reserves (e-money that is issued by the central bank for banks) and zero maturity deposits (e-money that is issued by banks). Transactions between bankers are settled by reserves, while transactions in the non-bank private sector are settled by zero maturity deposits. We use our model to discuss about unconventional monetary policy tools during the Great Recession. Due to the maturity mismatch between deposits and loans, we find that keeping the federal funds rate at the lower bound for a long but finite time stimulates the economy in the short run but creates deflation and lower outputs in the long run. To get out of the zero lower bound, the central bank can conduct helicopter money and increase the interest rate paid on reserves simultaneously, which is impossible in the Keynesian theory, but possible with the current electronic money system.

Suggested Citation

  • Ngotran, Duong, 2016. "The E-Monetary Theory," MPRA Paper 77206, University Library of Munich, Germany, revised 25 Feb 2017.
    • Handle: RePEc:pra:mprapa:77206
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    Cited by:

    1. Ngotran, Duong, 2019. "The e-monetary theory," Economics Discussion Papers 2019-49, Kiel Institute for the World Economy (IfW Kiel).
    2. Ngotran, Duong, 2017. "Interest on reserves and monetary policy of targeting both interest rate and money supply," MPRA Paper 81579, University Library of Munich, Germany.
    3. Duong Ngotran, 2016. "The E-Monetary Theory," 2016 Papers png175, Job Market Papers.
    4. Ngotran, Duong, 2020. "The e-monetary theory," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 14, pages 1-41.
    5. Marcelo A. T. Aragão, 2021. "A Few Things You Wanted to Know about the Economics of CBDCs, but were Afraid to Model: a survey of what we can learn from who has done," Working Papers Series 554, Central Bank of Brazil, Research Department.

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    More about this item

    Keywords

    e-money; reserves; quantitative easing; zero lower bound; interest on reserves; helicopter money;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

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