On the monetary policy in an economy with banks endogenously creating money

This paper attempts to employ a microeconomic model (industrial‐organization approach to banking) to formalize the concept that banks in an economy may also unilaterally create money, at least initially, rather than passively multiplying the base money exogenously issued by the Central Bank in the m...

Full description

Saved in:
Bibliographic Details
Published in:The American journal of economics and sociology 2023-03, Vol.82 (2), p.121-127
Main Authors: Wang, X. Henry, Yang, Bill, Young, Alex
Format: Article
Language:English
Subjects:
Bank deposits
Banking
Central banks
Creation process
Industrial organization
Interest rates
Loans
Microeconomics
Monetary policy
Money
Unilateralism
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:This paper attempts to employ a microeconomic model (industrial‐organization approach to banking) to formalize the concept that banks in an economy may also unilaterally create money, at least initially, rather than passively multiplying the base money exogenously issued by the Central Bank in the money creation process. It shows that in equilibrium, banks may indeed create money (bank deposits) when making loans without relying on the newly issued base money from the Central Bank. Instead, the endogenously created money by banks would cause the Central Bank to endogenously adjust base money to hit the target policy interest rate.
ISSN:0002-9246
1536-7150
DOI:10.1111/ajes.12496