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Financial Deregulation and the LM Schedule

Author

Listed:
  • Alvin L. Marty

    (Baruch College, CUNY)

  • Ahmet Baytas

    (Montclair State College)

Abstract

A 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.

Suggested Citation

  • Alvin L. Marty & Ahmet Baytas, 1992. "Financial Deregulation and the LM Schedule," Eastern Economic Journal, Eastern Economic Association, vol. 18(2), pages 129-132, Spring.
    • Handle: RePEc:eej:eeconj:v:18:y:1992:i:2:p:129-132
    as

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    File URL: http://web.holycross.edu/RePEc/eej/Archive/Volume18/V18N2P129_132.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. William Poole, 1969. "Optimal choice of monetary policy instruments in a simple stochastic macro model," Special Studies Papers 2, Board of Governors of the Federal Reserve System (U.S.).
    3. 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.
    4. William Poole, 1970. "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(2), pages 197-216.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Bank; Deregulation; Intermediation; Money;
    All these keywords.

    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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