tag:blogger.com,1999:blog-2499715909956774229.post303054470791812290..comments2024-03-22T22:37:02.639-07:00Comments on Stephen Williamson: New Monetarist Economics: The Money MultiplierStephen Williamsonhttp://www.blogger.com/profile/01434465858419028592noreply@blogger.comBlogger9125tag:blogger.com,1999:blog-2499715909956774229.post-72075424763130717512012-08-03T04:06:18.357-07:002012-08-03T04:06:18.357-07:00The knowledge on your website never confuses me
u...The knowledge on your website never confuses me<br /><br /><a href="unsecured%20loans%20online" rel="nofollow">unsecured loans online </a>Anonymoushttps://www.blogger.com/profile/05348397225607648241noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-29769083566450116102010-10-10T04:20:27.291-07:002010-10-10T04:20:27.291-07:00Good Work! Dragon Ball, Dragon Ball z and Dragon b...Good Work! Dragon Ball, Dragon Ball z and Dragon ball GT Remastered Seasons Episode Saga Watch At <a href="http://www.livedragonballz.weebly.com" rel="nofollow">http://www.livedragonballz.weebly.com</a>welhttps://www.blogger.com/profile/11545654625131311553noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-8182605006362888042010-04-22T11:46:37.847-07:002010-04-22T11:46:37.847-07:00Interesting. I'll write on bank capital someti...Interesting. I'll write on bank capital sometime soon.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-82088422320335161022010-04-21T23:11:27.610-07:002010-04-21T23:11:27.610-07:00Money, banks, loans, reserves, capital, and loan o...Money, banks, loans, reserves, capital, and loan officers<br /><br />I like this comment (Posted by: JKH | November 29, 2009 at 05:32 PM)<br /><br />http://worthwhile.typepad.com/worthwhile_canadian_initi/2009/11/money-banks-loans-reserves-capital-and-loan-officers.htmlAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-22153976931112695492010-04-19T06:41:57.262-07:002010-04-19T06:41:57.262-07:00Yes, that's a good point. Bank liabilities are...Yes, that's a good point. Bank liabilities are being exchanged all the time using checks (cheques in Canadian English), debit cards, and other means. Some of this may involve "on us" transactions - e.g. I may write you a check, and we both have accounts at the Bank of Montreal. For other transactions, there needs to be interbank settlement, which is done through interbank exchanges (by Fedwire in the US, or through LVTS in Canada) of reserves. There is thus a transactions demand for reserve balances. However, note that the transactions are made only during the trading day. Overnight the reserves just sit - they are doing nothing but potentially earning interest. Typically in Canada, overnight reserves are essentially zero (not right now, but these are unusual times). In the US, what counts toward required reserves, and the reserves that the Fed pays interest on, are an average of reserves held overnight over a 2-week period.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-81082479916193384082010-04-19T06:23:46.940-07:002010-04-19T06:23:46.940-07:00With respect to Nick Rowe's comment: A bank c...With respect to Nick Rowe's comment: A bank creating a chequing account to balance a new loan needs central bank cash on hand to the extent that cheques its customer writes are not offset by cheques that its customers deposit. And this need for central bank cash could be higher or lower than a reserve requirement.<br />Yes?<br />Glad to see your new blog,<br />Another Canadian!Ruth Harrisnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-60385051255905210272010-04-18T08:10:36.052-07:002010-04-18T08:10:36.052-07:00Hi Steve:
FYI, the originator of the money multip...Hi Steve:<br /><br />FYI, the originator of the money multiplier was:<br /><br />Crick, W.F. (1927), The genesis of bank deposits, Economica, vol 7, 1927, pp 191–202.<br /><br />I got the citation from the wikipedia article on fractional reserves.<br /><br />Also, my personal favorite money multiplier analogy starts with the observation that a checking account dollar is actually a call option on a green paper dollar, with a strike of zero and no expiration. Option pricing theory says that the issue of options does not systematically reduce the value of the base security, since options do not affect the assets and liabilities of the issuer of the base security. In the same way, the quantity of checking account dollars does not affect the value of green paper dollars, since the Fed's assets and liabilities are unaffected by the actions of private banks.Mike Sproulhttp://www.csun.edu/~hceco008/realbills.htmnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-61740433326212700662010-04-17T15:51:07.148-07:002010-04-17T15:51:07.148-07:00Hi Nick. Thanks for reading my stuff, and I apprec...Hi Nick. Thanks for reading my stuff, and I appreciate the comments. I didn't mean to have you take the refrigerator analogy too literally - I just wanted to use some arbitrary asset (and make the story funny) and I was in the kitchen at the time. SteveStephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-91824713824703497682010-04-17T12:53:01.240-07:002010-04-17T12:53:01.240-07:00Welcome to the econoblogosphere, by the way! (I on...Welcome to the econoblogosphere, by the way! (I only found your very good blog via David Andolfatto and Stephen Gordon. (For some reason you don't seem to show up on Economics Roundtable http://www.rtable.net/index/rt/economics/recent/ )<br /><br />I have been reading through your papers on "New Monetarism" with pleasure. There's a lot there I like. But I think you are missing some lessons that were learned by some Old Monetarists/Old Keynesians. I'm thinking particularly of the "disequilibrium money" approach, for want of a better name. Clower/Yeager, etc.<br /><br />I'm going to take issue with you on this post. Here's some points for starters:<br /><br />1. Demand deposits are media of exchange, and refrigerators aren't. Milton Friedman's analogy between money and durable goods is OK as far as it goes, but it doesn't go very far. In a monetary exchange economy, an excess demand for the medium of exchange will cause an excess supply of all other goods; an excess demand for refrigerators will not cause an excess supply of all other goods. (Yes, I am contradicting Walras' Law).<br /><br />2. Yes, there are degrees of liquidity. But sometimes, and in this case, a difference in degree becomes a difference in kind. That good which is the most liquid behaves in a qualitatively different way from all others. In nearly all cases, we convert even liquid assets like T-bills into money before we buy something else.<br /><br />3. Demand deposits do (often) serve as media of exchange, just like currency. commercial banks net out offsetting transactions at the central clearing house; only the difference is settled in reserves. So demand deposits (unlike refrigerators), really are special, and are like currency.<br /><br />4. Suppose refrigerators required 10% reserves. If I buy a new $100 fridge I have to include the opportunity cost of holding an extra $10 in reserves, as part of the cost of owning a new fridge. Not a big deal, especially in the limit as required reserves go to 0%. But, if an *individual* commercial bank extends an extra $100 in loans, by creating an extra $100 in demand deposits, what happens? The borrower did not take out a $100 loan just so he could hold an extra $100 in deposits. He (presumably) borrowed the $100 so he could spend it. And when he spends it the proceeds will almost certainly be deposited in a different bank. So our first bank loses $100 in reserves, *regardless of whether the required reserve ratio is 10%, 0%, or 100%*. At the margin, it is as if an individual bank faces a 100% reserve ratio. So the cots of making a $100 loan, and expanding deposits by $100, at the margin, is the cost of losing (or needing to borrow) $100 in extra reserves. So the supply (i.e. the supply price, or supply curve) of reserves affects deposit creation even under 0% desired reserve ratio. And it does so to a far greater extant than a 10% reserve ratio on fridges affects the demand for fridges. It is as if there were 100% required reserve ratio on fridges, at the margin.<br /><br />I know I must be about the last economist alive who still thinks there's some truth in the old textbook story. But there it is!Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.com