How required reserve ratio affects distribution and velocity of money

Ning Xi, Ning Ding and Yougui Wang

Physica A: Statistical Mechanics and its Applications, 2005, vol. 357, issue 3, 543-555

Abstract: In this paper the dependence of wealth distribution and the velocity of money on the required reserve ratio is examined based on a random transfer model of money and computer simulations. A fractional reserve banking system is introduced to the model where money creation can be achieved by bank loans and the monetary aggregate is determined by the monetary base and the required reserve ratio. It is shown that monetary wealth follows asymmetric Laplace distribution and latency time of money follows exponential distribution. The expression of monetary wealth distribution and that of the velocity of money in terms of the required reserve ratio are presented in a good agreement with simulation results.

Keywords: Money creation; Reserve ratio; Statistical distribution; Velocity of money; Random transfer (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:357:y:2005:i:3:p:543-555

DOI: 10.1016/j.physa.2005.04.014

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