Money,reserves, and the transmission of monetary policy: Does the money multiplier exist? |
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| Authors: | Seth Carpenter Selva Demiralp |
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| Institution: | 1. Olin Business School, Washington University in St. Louis, 1 Brookings Drive, St Louis MO 63130, USA;2. CEPR, 3 Great Sutton Street, London EC1V 0DX;3. Columbia Business School, Columbia University, 022 Broadway, New York, NY 10027, USA;4. ECGI, c/o the Royal Academies of Belgium, Palace of the Academies, Rue Ducale 1 Hertogsstraat, 1000 Brussels - Belgium;1. Bank of England, Room TS-03-414, Threadneedle Street, London EC2R8AH, UK;2. Vrije Universiteit Amsterdam and Tinbergen Institute, De Boelelaan 1105, Amsterdam 1081 HV, The Netherlands;1. Department of Economics, University of California, Irvine, United States;2. University of Wisconsin–Madison, FRB Minneapolis, FRB Chicago and NBER, United States;3. Peking University, China;4. Auckland University of Technology, New Zealand |
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| Abstract: | With the use of non-traditional policy tools, the level of reserve balances has risen in the US from roughly $20 billion before the financial crisis to well past $1 trillion. The effect of reserve balances in macroeconomic models often comes through the money multiplier, affecting the money supply and the bank lending. In this paper, we document that the mechanism does not work through the standard multiplier model or the bank lending channel. If the level of reserve balances is expected to have an impact on the economy, it seems unlikely that a standard multiplier story will explain the effect. |
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