讲义宏观经济学

1、MACROECONOMICSS E V E N T H E D I T I O NPowerPoint Slides by Ron CronovichN. Gregory MankiwC H A P T E RMoney Supply, Money Demand, and the Banking System18In this chapter, you will learn:how the banking system “creates” moneythree ways the Fed can control the money supply, and why the Fed cant con

2、trol it preciselyleading theories of money demanda portfolio theorya transactions theory: the Baumol-Tobin modelBanks role in the money supplyThe money supply equals currency plus demand (checking account) deposits:M = C + D Since the money supply includes demand deposits, the banking system plays a

3、n important role. 3CHAPTER 18 Money Supply, Money Demand, Banking SystemA few preliminariesReserves (R ): the portion of deposits that banks have not lent.A banks liabilities include deposits,assets include reserves and outstanding loans.100-percent-reserve banking: a system in which banks hold all

4、deposits as reserves.Fractional-reserve banking: a system in which banks hold a fraction of their deposits as reserves. 4CHAPTER 18 Money Supply, Money Demand, Banking SystemBanks role in the money supplyTo understand the role of banks, we will consider three scenarios:1.No banks2.100-percent reserv

5、e banking(banks hold all deposits as reserves)3.Fractional-reserve banking(banks hold a fraction of deposits as reserves, use the rest to make loans)In each scenario, we assume C = $1000. 5CHAPTER 18 Money Supply, Money Demand, Banking SystemSCENARIO 1: No banksWith no banks, D = 0 and M = C = $1000

6、.6CHAPTER 18 Money Supply, Money Demand, Banking SystemSCENARIO 2: 100-percent reserve bankingAfter the deposit: C = $0, D = $1,000, M = $1,000 LESSON:100%-reserve banking has no impact on size of money supply. 7CHAPTER 18 Money Supply, Money Demand, Banking SystemFIRSTBANKS balance sheetAssetsLiabi

7、litiesreserves $1,000deposits $1,000Initially C = $1000, D = $0, M = $1,000. Now suppose households deposit the $1,000 at “Firstbank.”SCENARIO 3: Fractional-reserve bankingThe money supply now equals $1,800:Depositor has $1,000 in demand deposits.Borrower holds $800 in currency.8CHAPTER 18 Money Sup

8、ply, Money Demand, Banking SystemFIRSTBANKS balance sheetAssetsLiabilitiesreserves $1,000reserves $200loans $800deposits $1,000Suppose banks hold 20% of deposits in reserve, making loans with the rest.Firstbank will make $800 in loans. LESSON: in a fractional-reserve banking system, banks create mon

9、ey.SCENARIO 3: Fractional-reserve bankingSecondbank will loan 80% of this deposit.9CHAPTER 18 Money Supply, Money Demand, Banking SystemSECONDBANKS balance sheetAssetsLiabilitiesreserves $800loans $0reserves $160loans $640deposits $800Suppose the borrower deposits the $800 in Secondbank. Initially,

10、Secondbanks balance sheet is:SCENARIO 3: Fractional-reserve banking10CHAPTER 18 Money Supply, Money Demand, Banking SystemTHIRDBANKS balance sheetAssetsLiabilitiesdeposits $640If this $640 is eventually deposited in Thirdbank,then Thirdbank will keep 20% of it in reserve, and loan the rest out: rese

11、rves $640loans $0reserves $128loans $512Finding the total amount of money:Original deposit = $1000+ Firstbank lending= $ 800+ Secondbank lending = $ 640+ Thirdbank lending= $ 512+ other lending11CHAPTER 18 Money Supply, Money Demand, Banking SystemTotal money supply = (1/rr ) $1,000 where rr = ratio

12、 of reserves to depositsIn our example, rr = 0.2, so M = $5,000Money creation in the banking system12CHAPTER 18 Money Supply, Money Demand, Banking SystemA fractional reserve banking system creates money, but it doesnt create wealth:Bank loans give borrowers some new money and an equal amount of new

13、 debt. A model of the money supplyMonetary base, B = C + Rcontrolled by the central bankReserve-deposit ratio, rr = R/Ddepends on regulations & bank policiesCurrency-deposit ratio, cr = C/Ddepends on households preferences13CHAPTER 18 Money Supply, Money Demand, Banking Systemexogenous variablesSolv

14、ing for the money supply:14CHAPTER 18 Money Supply, Money Demand, Banking SystemwhereThe money multiplierIf rr 1If monetary base changes by B, then M = m B m is the money multiplier, the increase in the money supply resulting from a one-dollar increase in the monetary base. 15CHAPTER 18 Money Supply

15、, Money Demand, Banking SystemwhereThree instruments of monetary policy1.Open-market operations2.Reserve requirements3.The discount rate16CHAPTER 18 Money Supply, Money Demand, Banking SystemOpen-market operationsdefinition: The purchase or sale of government bonds by the Federal Reserve.how it work

16、s:If Fed buys bonds from the public, it pays with new dollars, increasing B and therefore M. 17CHAPTER 18 Money Supply, Money Demand, Banking SystemReserve requirementsdefinition: Fed regulations that require banks to hold a minimum reserve-deposit ratio. how it works:Reserve requirements affect rr

17、and m: If Fed reduces reserve requirements, then banks can make more loans and “create” more money from each deposit. 18CHAPTER 18 Money Supply, Money Demand, Banking SystemThe discount ratedefinition: The interest rate that the Fed charges on loans it makes to banks. how it works:When banks borrow

18、from the Fed, their reserves increase, allowing them to make more loans and “create” more money. The Fed can increase B by lowering the discount rate to induce banks to borrow more reserves from the Fed. 19CHAPTER 18 Money Supply, Money Demand, Banking SystemWhich instrument is used most often?Open-

19、market operations:most frequently used.Changes in reserve requirements: least frequently used.Changes in the discount rate:largely symbolic. The Fed is a “lender of last resort,” does not usually make loans to banks on demand.20CHAPTER 18 Money Supply, Money Demand, Banking SystemWhy the Fed cant pr

20、ecisely control MHouseholds can change cr, causing m and M to change. Banks often hold excess reserves (reserves above the reserve requirement). If banks change their excess reserves, then rr, m, and M change. 21CHAPTER 18 Money Supply, Money Demand, Banking SystemwhereCASE STUDY: Bank failures in t

21、he 1930s From 1929 to 1933: over 9,000 banks closedmoney supply fell 28%This drop in the money supply may have caused the Great Depression, but certainly contributed to its severity. 22CHAPTER 18 Money Supply, Money Demand, Banking SystemCASE STUDY: Bank failures in the 1930s Loss of confidence in b

22、anks cr mBanks became more cautious rr m23CHAPTER 18 Money Supply, Money Demand, Banking SystemwhereCould this happen again?Many policies have been implemented since the 1930s to prevent such widespread bank failures.E.g., Federal Deposit Insurance, to prevent bank runs and large swings in the curre

23、ncy-deposit ratio. 24CHAPTER 18 Money Supply, Money Demand, Banking SystemMoney DemandTwo types of theoriesPortfolio theoriesemphasize “store of value” functionrelevant for M2, M3not relevant for M1. (As a store of value, M1 is dominated by other assets.)Transactions theoriesemphasize “medium of exc

24、hange” functionrelevant for M125CHAPTER 18 Money Supply, Money Demand, Banking SystemA simple portfolio theorywherers = expected real return on stocksrb = expected real return on bonds e = expected inflation rateW = real wealth26CHAPTER 18 Money Supply, Money Demand, Banking SystemThe Baumol-Tobin M

25、odela transactions theory of money demandnotation:Y = total spending, done gradually over the yeari = interest rate on savings account N = number of trips consumer makes to the bank to withdraw money from savings accountF = cost of a trip to the bank (e.g., if a trip takes 15 minutes and consumers w

26、age = $12/hour, then F = $3)27CHAPTER 18 Money Supply, Money Demand, Banking SystemMoney holdings over the yearN =128CHAPTER 18 Money Supply, Money Demand, Banking SystemMoney holdings TimeAverage = Y/ 2Y1Money holdings over the year29CHAPTER 18 Money Supply, Money Demand, Banking SystemMoney holdin

27、gs Time11/2Average = Y/ 4Y/ 2YN = 2Money holdings over the year30CHAPTER 18 Money Supply, Money Demand, Banking SystemAverage = Y/ 61/32/3Money holdings Time1Y/ 3YN = 3The cost of holding moneyIn general, average money holdings = Y/2NForegone interest = i (Y/2N )Cost of N trips to bank = F N Thus,31

28、CHAPTER 18 Money Supply, Money Demand, Banking SystemGiven Y, i, and F, consumer chooses N to minimize total costFinding the cost-minimizing N32CHAPTER 18 Money Supply, Money Demand, Banking SystemN*Finding the cost-minimizing NTake the derivative of total cost with respect to N, set it equal to zer

29、o:33CHAPTER 18 Money Supply, Money Demand, Banking SystemSolve for the cost-minimizing N*The money demand functionThe cost-minimizing value of N :34CHAPTER 18 Money Supply, Money Demand, Banking SystemTo obtain the money demand function, plug N* into the expression for average money holdings:Money d

30、emand depends positively on Y and F, and negatively on i.The money demand functionThe Baumol-Tobin money demand function:35CHAPTER 18 Money Supply, Money Demand, Banking SystemHow this money demand function differs from previous chapters:B-T shows how F affects money demand.B-T implies: e elasticity

31、 of money demand = 0.5, interest rate elasticity of money demand = 0.5Financial Innovation, Near Money, and the Demise of the Monetary AggregatesExamples of financial innovation:many checking accounts now pay interestvery easy to buy and sell assetsmutual funds are baskets of stocks that are easy to

32、 redeem - just write a checkNon-monetary assets having some of the liquidity of money are called near money. Money & near money are close substitutes, and switching from one to the other is easy. 36CHAPTER 18 Money Supply, Money Demand, Banking SystemFinancial Innovation, Near Money, and the Demise

33、of the Monetary AggregatesThe rise of near money makes money demand less stable and complicates monetary policy. 1993: the Fed switched from targeting monetary aggregates to targeting the Federal Funds rate. This change may help explain why the U.S. economy was so stable during the rest of the 1990s. 37CHAPTER 18