Our Textbooks are Wrong: How An Increase in the Currency-Deposit Ratio Can Increase the Money Multiplier

Jesse Zinn

No 2dbj6, OSF Preprints from Center for Open Science

Abstract: I show that when deposits are less than bank reserves the money multiplier is increasing in the currency-deposit ratio. This result contradicts textbooks in intermediate macroeconomic theory and money \& banking, which claim that the money multiplier is always decreasing in the currency-deposit ratio. I also propose an alternative framework in which changes in the monetary base and changes in circulating currency always have a negative relationship. This approach explicitly assumes that the monetary base is constant, which is consistent with an analysis focused exclusively on the behavior of private banks and the public.

Date: 2017-10-28
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:osf:osfxxx:2dbj6

DOI: 10.31219/osf.io/2dbj6

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