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Our Textbooks are Wrong: How An Increase in the Currency-Deposit Ratio Can Increase the Money Multiplier

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  • Zinn, Jesse Aaron

    (Clayton State University)

Abstract

I show that when deposits are less than bank reserves the money multiplier is increasing in the currency-deposit ratio. This result contradicts textbooks in intermediate macroeconomic theory and money \& banking, which claim that the money multiplier is always decreasing in the currency-deposit ratio. I also propose an alternative framework in which changes in the monetary base and changes in circulating currency always have a negative relationship. This approach explicitly assumes that the monetary base is constant, which is consistent with an analysis focused exclusively on the behavior of private banks and the public.

Suggested Citation

  • Zinn, Jesse Aaron, 2017. "Our Textbooks are Wrong: How An Increase in the Currency-Deposit Ratio Can Increase the Money Multiplier," OSF Preprints 2dbj6, Center for Open Science.
    • Handle: RePEc:osf:osfxxx:2dbj6
    DOI: 10.31219/osf.io/2dbj6
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    References listed on IDEAS

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    1. Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867–1960," NBER Books, National Bureau of Economic Research, Inc, number frie63-1.
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    Cited by:

    1. Jesse Aaron Zinn, 2018. "An alternative framework for a textbook analysis of the money multiplier," Economics Bulletin, AccessEcon, vol. 38(4), pages 2111-2115.

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