Questions tagged [money-supply]

Use for questions primarily related to the stock of money, either narrow money (MB or M0), and broad money (M1, M2, etc). This can also be used in questions related to the creation of money by governments and central banks, including questions related to models with a money market like IS-LM, where the supply is of importance.

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63 views

Does money hidden in "Moneyland" (offshore etc) get included in money supply and savings ratio statistics?

The recent Pandora Papers fuss has prompted me to ask a question that has been on my mind for a while. Does money hidden in offshore trusts, nominee companies and the various other Moneyland ...
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2answers
43 views

Can the Federal Reserve permanently decrease money supply?

As far as I understand it, the primary way the Federal Reserve decreases the money supply is by selling bonds–the entities buying these bonds give up their cash for them and thus M0 is decreased. ...
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How the Fed and Treasury coordinate on liquidity management

On top of the Fed's USD120bn monthly treasury/MBS purchases, the drawdown in Treasury issuance over the last year has also added over USD1tr to the system. The premise is, faced with drawn-out debt ...
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35 views

Would printing money be necessary for remedying macroeconomic problems such as underemployment and overindebtedness if trade was balanced?

Printing money is often touted as the solution to the macroeconomic problems faced by developed economies today, namely lacklustre GDP growth, public and private overindebtedness and underemployment. ...
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Any support for the idea that QE is employed to prevent the money supply from contracting

It appears to me that QE has been employed after the collapse of housing bubbles - both in Japan in the early nineties and in many other countries around 2008. During a housing bubble there is a high ...
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How do currency boards maintain a 100% foreign reserve backing in the presence of fractional reserve banking?

Under a currency board system, money in circulation has to be 100% backed by foreign reserves. Suppose the domestic currency (A\$) is 100% backed by a foreign currency (B\$), with a fixed 1:1 ratio. ...
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2answers
63 views

When was the last time printing money involved actual printing?

A common term used when the money supply is being increased is "printing money". Presumably at some point in the distant past, currency was actually printed to increase the money supply. Of ...
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2answers
144 views

Why was Friedman so wrong about inflation?

In a famous 1977 lecture, Milton Friedman claims that inflation depends purely on the monetary policy and he proves it with a convincing chart (youtube video here) I have reproduced his chart using ...
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1answer
35 views

When interest rates are high, where does the money that banks pay to depositors come from?

I know that banks primarily make money from the 'spread', that is, people deposit their money in the bank and the bank pays them back with interest, and the bank lends that money to other people and ...
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1answer
23 views

At what frequency does monetary inflation compound?

The M1 money supply of the U.S. dollar is released monthly. But how often does the Federal Reserve or treasury add/remove a new dollar or a new penny? By second, minute, daily?
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148 views

Has there really been a 170% increase in M1 money supply in the US in February 2021?

tradingeconomics shows an M1 money supply of the past year as follows: This suggests an unusually high increase of ~170% in February 2021. Is this increase real or somehow an artifact of the way the ...
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4answers
287 views

A bank approves a loan: where does the money come from?

In the naïve picture of the banking system, banks strike a balance between savings invested in them by savers and the loans requested of them by borrowers. The money loaned to borrowers is the same ...
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How £800,000 of specie is above what the circulation can employ?

I'm reading this (clicking it will download a PDF, so, do as you find good) analysis of Adam Smith's theory of banking and money. On page 13, the author writes: For example, Smith (293) says that if ...
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Puzzled by proposed inflation mechanisms

There are some explanations for long term inflation that completely baffle me in that they seem so deeply flawed that I wonder how come they are taken seriously. So take for example the idea of a &...
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Time series for contrasting empirically money demand and Taylor rules series

Non-cashless New-keynesian models often include discretionary monetary policy expressed as a Taylor rule: $1+i_t = (1+i)\left(\frac{1+\pi_t}{1+\pi}\right)^{\phi_\pi}\left(\frac{y_t}{y_t^n}\right)^{\...
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190 views

Is The Money Masters (1996) correct in its main thesis?

The Money Masters is a 1996 documentary film that discusses the concepts of money, debt, taxes, and describes their development from biblical times onward. Its main points were summarized by a ...
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37 views

Will interest rates rise if a government runs a huge budget deficit?

My (very simple) logic is this: if government decides to spends a huge amount of money it does not have (meaning that it does not come from taxes) then it will borrow that money and thus create a lot ...
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57 views

How the Federal Reserve Manages Money Supply

I'm trying to understand how the Federal Reserve manages the money supply via open market operations. According to this post, when Fed buys securities, that increases bank reserves, which allows banks ...
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100 views

long run growth of money supply

I am trying to understand how the money supply (bank deposits + currency) grows over time. That's the end goal. This is the first part of my awful struggle. I'm superconfused, and almost everything I ...
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23 views

What was the annual real growth rate in the US from 2010 to 2015?

If we look at the US M0 money supply after the global financial crisis (GFC): we see that it doubled from 2010 to 2015. If we look at the Consumer Price Index in the same period: it rose by 8%. So ...
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1answer
30 views

To what extent can cryptocurrencies be influenced by monetary policy?

Background In modern economies, at least up until ~10 years ago, it was assumed that a currency would be technically able to be subjected to monetary policy, that is, where more money is created or ...
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2answers
102 views

Why in the quantitative equation: $MV=PY$, $V$ and $Y$ can be taken as fixed?

To equation is \begin{align} MV=PY \end{align} where $V=\frac{1}{k}$. Why $V$ and $Y$ can be taken as fixed or constant? Why can $V=\frac{1}{k}$ too? Thanks in advance
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Why does the inflation not follow the money supply?

To my understanding classical economic theory tells us that inflation occurs when the money supply is increased faster than the economic growth. Lately there has been a sharp rise in the rate of money ...
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What is the right amount of money supply? [closed]

As Bitcoin limits the money supply and the total amount of coins in circulation, whereas central banks have a degree of freedom to influence the money supply, I came to wonder what perspectives and ...
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0answers
30 views

Effects between price level and interest rate

I'm looking at the relationship between the price level and the interest rate in an economy. If the price level goes up, with fixed nominal money supply, the real money supply goes down, therefore, ...
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3answers
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How is the differential definition of money supply, velocity, and GDP defined?

I was reading: This article on money velocity (see the summary section) Where two formulas are presented: first an equality: $$\text{Quantity of Money} (M) \times \text{Velocity of Money} (V) = \...
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2answers
829 views

How is money destroyed when banks issue debt?

Bank of England (2014): Money can also be destroyed through the issuance of long-term debt and equity instruments by banks. How is money destroyed when banks issue debt? Say Bank X issues a £100 10-...
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Relationship between CURRCIR, CURRENCY, and MBCURRCIR?

The FRED website has Currency Component of M1 (CURRENCY) Currency in Circulation (CURRCIR) Monetary Base; Currency in Circulation (MBCURRCIR) Monetary Base; Total (BOGMBASE) M1 Money Stock (M1) ...
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2answers
48 views

Typical duration of bonds purchased in QE

I know that QE involves the purchasing of government bonds by the central bank "printing money" but I am curious about what the typical time to maturity of those bonds are. I.e. the typical ...
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16 views

Increase in money supply when price are flexible in the basic new keynesian model

I would like to know what would be the effect on price and quantities of an increase in money supply in the basic new keyensian model. What happen if price are fully flexible ? What if prices are ...
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1answer
27 views

I there an established correlation between Federal Reserve balance sheet and MB( monetary base)?

More precisely: Are there any implied bounds for the ratio M0/FRBS with MB= the monetary base and FRBS=Federal Reserve Balance Sheet? https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm ...
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29 views

LM-Curve formula question

An LM Curve can be described as following $M^d(Y,i) = M_0 + M_1Y – M_2i$ $M^d = M/P$ M and P are exogen I know that $i$ is interest rate, and Y is GDP. Why is $M_1$ and $M_2$ positive? And what does $...
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145 views

What is the difference between "borrowing" money and "printing" money?

When a country's government has a budget shortfall, that country has to find some way to pay its contractors/emplooyees. Unlike a normal company, the government can't simply go to the bank and ask to ...
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43 views

Why don't Governments do away with the optics of taking on debt against new currency, and instead issue a limited currency every year (say 5% of GDP)?

Governments engage in the optical illusion of taking on debt against issued currency. The debt is effectively owed by the Government to itself. The value of the debt is completely controlled and ...
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1answer
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Oliver Hart said that financing deficits by printing money can lead to hyperinflation "once the economy is close to full capacity". What does he mean?

In response to a poll on Modern Monetary Theory, Nobel Laureate Oliver Hart said that Governments financing deficits by printing more money "can quickly lead to inflation or even hyperinflation ...
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2answers
48 views

For stability, is there a limit to the sovereign debt that a Government owes to itself against issued fiat currency?

Looking beyond the optical illusion of Governments owing debt to Central Banks, Governments effectively owe themselves the sovereign debt created against issued fiat currency. By definition, there ...
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147 views

Can banks 'create' money on their own or do they need help from other banks?

My current understanding of the banking money multiplication process goes as follows: Alice comes along and deposits 100 cash into Bank A. Bank A gains 100 in vault cash (reserves) as an asset and 100 ...
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1answer
62 views

Do open market operations permanently increase the money supply?

Suppose the Fed buys 1000 dollars worth of T-Bills in the open market to try decrease interest rates and increase the money supply. It does this by printing money and electronically increasing the ...
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85 views

Exogenous Money Supply

In the first 10 seconds of the following video: https://youtu.be/anZ58gZcxqk, A claim is made that in the Exogenous Money Supply Model, Money Supply is not determined by interest rates. The person ...
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Liquidity puzzle in the representative household model

In a cash in advance representative household model, the nominal interest rate may be determined by $$\frac{1}{1 + i_t}= βE_t\left(\frac{M_t}{M_{t+1}}\right)$$ where $\beta$ is the discount rate. I'...
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42 views

Can printing money with simultaneous government intervention to increase supply prevent inflation?

Just as above...If we print money and simultaneously introduce some sort of government intervention in order to increase supply/ production, then supply and demand would be 'balanced' and therefore ...
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2answers
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What would monetarists do when interest rates approach zero and become ineffective?

So monetarist economists such as Milton Friedman focus on managing the money supply and lower interest rates as a solution to economic downturn. But what would they do in a recession as the interest ...
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695 views

How can the stock market keep growing indefinitely?

It sounds like a dumb question, but there is only so much money in the world. Assets can grow, but money can only be printed. So if there is 400 trillion dollars worth of money in the world, and the ...
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1answer
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Plotting money market equilibrium for 2020

I am trying to roughly sketch up supply / demand curves by parameterizing the major happenings in the money market in 2020. I intend to use this chart as the template: Below, I'll outline my thought ...
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3answers
146 views

If I shred a $20 bill, is society poorer? What is the effect on the real economy?

If the answer is yes, society is poorer, then the converse must hold true: that the government could make us all wealthier by simply printing money. However, a collapse in the money supply must have ...
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1answer
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Overnight deposits?

When considering $M_{0}$, $M_{1}$ etc, there is something called "overnight deposits" which throws me off since one can withdraw money at any time from ones bank account and so what one has ...
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39 views

Model with money creation

is there any macro model/paper introducing money creation (ex nihilo money creation) ? I would be very interested in reading them.
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How would a global Robin Hood deed affect the economy? [closed]

In one fiction series about a dystopian world, a small group of wealthy criminals owned a large fraction of the world's cash, which was on their bank accounts in a single offshore bank. In the happy ...
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12answers
9k views

Why do banks take deposits if they do not need them to make loans?

I have taken some economics courses in university, where I was introduced to fractional-reserve banking. From my understanding, in fractional-reserve banking, the bank has motivation to encourage ...
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1answer
106 views

Can the money multiplier happen within a single bank / a single loan?

Many tutorials explain the money multiplier effect by involving a chain of banks (e.g. khan academy) So if reserve requirements are 10% and bank A owns 1000€ reserves, bank A can lend 900€ to bank B; ...

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