Money Creation and Banking: Theory and Evidence

Heon Lee

Papers from arXiv.org

Abstract: This paper studies the role of banks' money creation in monetary transmission. I develop a monetary-search model where demand for the monetary base and the money multiplier are endogenously determined through banks' money creation. The model and data show that reserves are not independent of interest rate policy, even with ample reserves. Furthermore, short-term rates and interest on reserves play distinct roles in monetary transmission. I evaluate the theory by matching it with data, and the calibrated model can account for the evolution of reserves, excess reserves, and the money multiplier

Date: 2021-09, Revised 2024-06
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-mac, nep-mon and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2109.15096

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