The E-Monetary Theory

Duong Ngotran ()

MPRA Paper from University Library of Munich, Germany

Abstract: Using the sparse grid, we solve a DSGE model where there are two types of electronic money: reserves (e-money that is issued by the central bank for banks) and zero maturity deposits (e-money that is issued by banks). Transactions between bankers are settled by reserves, while transactions in the non-bank private sector are settled by zero maturity deposits. We use our model to discuss about unconventional monetary policy tools during the Great Recession. Due to the maturity mismatch between deposits and loans, we find that keeping the federal funds rate at the lower bound for a long but finite time stimulates the economy in the short run but creates deflation and lower outputs in the long run. To get out of the zero lower bound, the central bank can conduct helicopter money and increase the interest rate paid on reserves simultaneously, which is impossible in the Keynesian theory, but possible with the current electronic money system.

Keywords: e-money; reserves; quantitative easing; zero lower bound; interest on reserves; helicopter money (search for similar items in EconPapers)
JEL-codes: E4 E40 (search for similar items in EconPapers)
Date: 2016-10-29, Revised 2017-02-25
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac, nep-mon and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://mpra.ub.uni-muenchen.de/77206/1/MPRA_paper_77206.pdf original version (application/pdf)

Related works:
Working Paper: The E-Monetary Theory (2017)
Working Paper: The E-Monetary Theory (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:77206

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