Why the money multiplier has remained persistently so low in the post-crisis United States?

Elena Seghezza (seghezza@unige.it) and Pierluigi Morelli

Economic Modelling, 2020, vol. 92, issue C, 309-317

Abstract: The money multiplier collapsed in the USA in the wake of the Lehman crisis, and since then it remained at particularly low levels. The main reason for this collapse is to be found in the significant increase in banks’ excess reserves and the modest increase in deposits. The weak growth of deposits resulted from a contained growth of loans. Most scholars attribute the latter to the low propensity of banks to grant credit. Using quarterly data for the period 1991–2017 we estimate a demand for loans by firms and households. We show that the modest increase in deposits and the persistence of low levels of the US money multiplier has been due to the weak demand for loans by the private sector.

Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:92:y:2020:i:c:p:309-317

DOI: 10.1016/j.econmod.2020.01.010

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