Financial Deregulation and the LM Schedule

Alvin Marty and Ahmet Baytas
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Alvin Marty: Baruch College, CUNY
Ahmet Baytas: Montclair State College

Eastern Economic Journal, 1992, vol. 18, issue 2, 129-132

Abstract: A model is presented to determine the effect on the slope of the LM schedule of full deregulation of bank's interest rates on demand deposits. The opportunity costs of holding a bank deposits is analyzed and explicit consideration is given to the marginal costs of intermediation. Two popular demand functions for money are assumed: the double log and the semi-log functions. It is shown that a strong presumption exists that the slope of the LM schedule is steepened around the fixed full employment real interest rate. Only an unusual increase in the interest elasticity of the demand for money sufficient to offset the impact of other variables could upset this presumption.

Keywords: Bank; Deregulation; Intermediation; Money (search for similar items in EconPapers)
JEL-codes: E41 E44 G28 (search for similar items in EconPapers)
Date: 1992
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Persistent link: https://EconPapers.repec.org/RePEc:eej:eeconj:v:18:y:1992:i:2:p:129-132

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