The Money Supply Process Chapter 15 The Money Supply Process

Players in the Money Supply Process (貨幣供給過程的參與者) Central bank (Federal Reserve System) Banks (depository institutions; financial intermediaries) Depositors (individuals and institutions)

Deposit Creation Process(存款創造過程) 假定： 獨佔銀行(或銀行體系)無資金外流 所有銀行均不持有超額準備 存款的法定準備率為10% 銀行只能吸收支票存款或活期存款

Table 1 Creation of Deposits (assuming 10% reserve requirement and a $100 increase in reserves)

The Formula for Multiple Deposit Creation (存款創造之乘數公式)

Critique of the Simple Model Holding cash stops the process (大眾持有現金後就停止) Currency has no multiple deposit expansion Banks may not use all of their excess reserves to buy securities or make loans. (銀行可能不會使用所有超額準備進行投資或放款) Depositors’ decisions (how much currency to hold) and bank’s decisions (amount of excess reserves to hold) also cause the money supply to change.

Federal Reserve System Fed’s Balance Sheet Federal Reserve System Assets Liabilities Government securities Currency in circulation Discount loans Reserves Monetary Liabilities (貨幣性負債) Currency in circulation (流通中通貨)— : in the hands of the public Reserves (準備): bank deposits at the Fed and vault cash Assets Government securities: holdings by the Fed that affect money supply and earn interest Discount loans (貼現放款)— : provide reserves to banks and earn the discount rate

美國的聯邦準備體系的資產負債表 Consolidated Balance Sheet of the Federal Reserve Source: Federal Reserve Bulletin. 美國的聯邦準備體系的資產負債表 Consolidated Balance Sheet of the Federal Reserve System ($ billion, end of 1996) Securities: 414.7 U.S. government and agency securities and banker’s acceptances Federal Reserve notes 426.5 outstanding Discount loans 0.1 Bank Deposits 24.5 Gold and SDR certificate accounts 20.7 U.S, Treasury deposits 7.7 Coin 0.6 Foreign and other deposits 1.1 Cash items in process of collection 12.8 Deferred-availability cash items 7.5 Other Federal Reserve assets 32.2 Other Federal Reserve liabilities and capital accounts 13.8 Total 481.1 Total 481.1

Monetary Base (貨幣基礎)

Deriving the Money Multiplier IV

Open Market Purchase from a Bank(公開市場向銀行買進證券) Banking System Federal Reserve System Assets Liabilities Securities -$100 +$100 Reserves Net result is that reserves have increased by $100 No change in currency(通貨不變) Monetary base has risen by $100

Open Market Purchase from Nonbank Public I (向非銀行大眾在公開市場買進證券) Banking System Federal Reserve System Assets Liabilities Reserves +$100 Checkable deposits Securities Person selling bonds to the Fed deposits the Fed’s check in the bank (大眾賣出債券再將錢存入銀行) Identical result as the purchase from a bank (與直接向銀行購買無異)

Open Market Purchase from Nonbank Public II Federal Reserve System Assets Liabilities Securities -$100 +$100 Currency in circulation Currency The person selling the bonds cashes the Fed’s check (大眾賣出債券並以現金型式持有) Reserves are unchanged (準備不變) Currency in circulation increases(流通中通貨增加) by the amount of the open market purchase Monetary base(貨幣基礎) increases by the amount of the open market purchase

Open Market Purchase: Summary The effect of an open market purchase on reserves depends on whether the seller of the bonds keeps the proceeds from the sale in currency or in deposits (公開市場購買是否影響準備金決定於賣出債券者以通貨或存款持有本金) The effect of an open market purchase on the monetary base always increases the monetary base by the amount of the purchase (公開市場買入總是會增加貨幣基礎)

Federal Reserve System Open Market Sale Nonbank Public Federal Reserve System Assets Liabilities Securities +$100 -$100 Currency in circulation Currency Reduces the monetary base by the amount of the sale Reserves remain unchanged The effect of open market operations on the monetary base is much more certain than the effect on reserves (公開市場操作對貨幣基礎的影響遠比對準備的影響確定)

Shifts from Deposits into Currency(由存款轉為通貨) Nonbank Public Banking System Assets Liabilities Checkable deposits -$100 Reserves Currency +$100 Federal Reserve System Assets Liabilities Currency in circulation +$100 Reserves -$100

Making a Discount Loan to a Bank(央行向銀行貼現放款) Banking System Federal Reserve System Assets Liabilities Reserves +$100 Discount loans Discount loan (borrowing from Fed) Monetary liabilities of the Fed have increased by $100 Monetary base also increases by this amount

Paying Off a Discount Loan from the Fed (償還央行貼現放款) Banking System Federal Reserve System Assets Liabilities Reserves -$100 Discount loans (borrowing from Fed) Net effect on monetary base is a reduction Monetary base changes one-for-one with a change in the borrowings from the Federal Reserve System(貨幣基礎與向央行借入款一對一的改變)

Other Factors Affecting the Monetary Base (其他影響貨幣基礎的因素) Float (浮帳) Treasury deposits at the Federal Reserve (政府(財政部)在央行存款) Interventions in the foreign exchange market (外匯市場干擾) Float(浮帳) ：待收(或託收中)票據減待付票據。浮帳的產生與天氣等因素有關

Fed’s Ability to Control the Monetary Base(聯準會掌控貨幣基礎) Open market operations are controlled by the Fed The Fed cannot determine the amount of borrowing by banks from the Fed Split the monetary base into two components MBn= MB - BR The money supply is positively related to both the non-borrowed monetary base MBn and to the level of borrowed reserves(借入準備), BR, from the Fed

中央銀行資產負債表 依據中央銀行資產負債表，可得： 資產＝準備貨幣＋準備貨幣以外的負債＋淨值 則 準備貨幣＝資產－準備貨幣以外的負債－淨值

中央銀行的資產負債表 中 央 銀 行 國外資產 20,689 通貨發行額 3,426 對政府債權 44 存款貨幣機構準備性存款 7,307 國外資產 20,689 通貨發行額 3,426 對政府債權 44 存款貨幣機構準備性存款 7,307 對貨幣機構債權 3 政府存款 2,794 對其他金融機構債權 1,233 其他金融機構轉存款 4,149 庫存現金 其他金融機構存款 其他資產 乙種國庫券 定期存單 儲蓄券 其他負債與淨值

Monetary Base (貨幣基礎) B = C+R = 流通中通貨+ 銀行的庫存現金 + 銀行在央行存款 = 通貨發行淨額 + 存款貨幣機構準備性存款 = 國外資產 + 對政府債權 + 對公民營事業債權 + 對金融機構債權 ﹣政府存款 – 金融機構轉存款 – 乙種國庫券央行負債 – 定期存單 – 儲蓄券

準備貨幣方程式 準備貨幣方程式可表示如下： 其他情況不變，中央銀行資產的增加或減少，會使準備貨幣 同方向等額變動，而準備貨幣以外的負債與淨值的增加或減 少，則會使準備貨幣反方向等額變動。 對政府債權 國外資產 對公民營事業債權 對金融機構債權 金融機構存款 政府存款 中央銀行發行單券 淨值 準備貨幣＝ 準備貨幣＝ －

Summary Table 1 Money Supply Response

Factors that Determine the Money Supply Changes in the nonborrowed monetary base(非借入貨幣基礎) MBn The money supply is positively related to the non-borrowed monetary base MBn Changes in borrowed reserves from the Fed The money supply is positively related to the level of borrowed reserves, BR, from the Fed

Factors that Determine the Money Supply Changes in the required reserves ratio(應提準備比率) The money supply is negatively related to the required reserve ratio. Changes in currency holdings(通或持有) The money supply is negatively related to currency holdings. Changes in excess reserves(超額準備比率) The money supply is negatively related to the amount of excess reserves.

The Money Multiplier(貨幣乘數) Define money as currency plus checkable deposits: M1 Link the money supply (M) to the monetary base (MB) and let m be the money multiplier

Deriving the Money Multiplier I Assume that the desired holdings of currency C and excess reserves ER grow proportionally with checkable deposits D. Then, c = {C/D} = currency ratio e = {ER/D} = excess reserves ratio

Deriving the Money Multiplier II

Deriving the Money Multiplier III The monetary base MB equals currency (C) plus reserves (R): MB = C + R = C + (r x D) + ER Equation reveals the amount of the monetary base needed to support the existing amounts of checkable deposits, currency and excess reserves.

Deriving the Money Multiplier IV

Intuition Behind the Money Multiplier

Application: The Great Depression Bank Panics, 1930 - 1933. Bank failures (and no deposit insurance) determined: Increase in deposit outflows(存款流失) and holding of currency (depositors) An increase in the amount of excess reserves (超額準備增加)(banks) For a relatively constant MB, the money supply decreased due to the fall of the money multiplier.

FIGURE 1 Deposits of Failed Commercial Banks, 1929–1933 Source: Milton Friedman and Anna Jacobson Schwartz, A Monetary History of the United States, 1867–1960 (Princeton, NJ: Princeton University Press, 1963), p. 309.

FIGURE 2 Excess Reserves Ratio and Currency Ratio, 1929–1933 Sources: Federal Reserve Bulletin; Milton Friedman and Anna Jacobson Schwartz, A Monetary History of the United States, 1867–1960 (Princeton, NJ: Princeton University Press, 1963), p. 333.

FIGURE 3 M1 and the Monetary Base, 1929–1933 Source: Milton Friedman and Anna Jacobson Schwartz, A Monetary History of the United States, 1867–1960 (Princeton, NJ: Princeton University Press, 1963), p. 333.

APPLICATION The 2007-2009 Financial Crisis(金融風暴) and the Money Supply During the recent financial crisis, as shown in Figure 4, the monetary base more than tripled(3倍) as a result of the Fed‘s purchase of assets and new lending facilities to stem(遏止) the financial crisis Figure 5 shows the currency ratio c and the excess reserves ratio e for the 2007-2009 period. We see that the currency ratio fell somewhat during this period, which our money supply model suggests would raise the money multiplier and the money supply because it would increase the overall level of deposit expansion. However, the effects of the decline in c were entirely offset by the extraordinary(異常) rise in the excess reserves ratio e

Figure 4 M1 and the Monetary Base, 2007-2009 量化寬鬆（Quantitative easing，簡稱QE）是一種貨幣政策，由中央銀行通過公開市場操作以提高貨幣供應 Source: Federal Reserve; www.federalreserve.gov/releases.

Figure 5 Excess Reserves Ratio and Currency Ratio, 2007-2009 Source: Federal Reserve; www.federalreserve.gov/releases.