Why the money multiplier has remained persistently so low in the post-crisis United States? |
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| Institution: | 1. Department of Political Science, University of Genova, P.zzale Brignole 3a, 16125 Genova, Italy;2. Associazione Bancaria Italiana, P.zza del Gesù 49, 00186, Roma, Italy;1. Economics Department, University of Girona, Carrer de la Universitat, 10. Campus de Montilivi, 17003 Girona, Spain;2. Applied Economics Department, Autonomous University of Barcelona, 08193, Bellaterra, Barcelona, Spain;1. Banco de Portugal, Portugal;2. Banco de Portugal, Nova SBE, Portugal;1. Department of Economics, Business and Finance, Mutah University, Karak, Jordan;2. Department of Economic and Statistics Cognetti De Martiis, University of Turin, Department of Economics and Finance, Brunel University London, Lungo Dora Siena 100A, Turin, Italy;1. Additional Commissioner of Taxes, National Board of Revenue of Bangladesh, Bangladesh;2. Department of Economics, Monash University, Melbourne, VIC, 3800, Australia;1. MEMOTEF Department, Sapienza University of Rome, Italy;2. Italian National Institute of Statistics, Italy;3. Department of Economics and Law, Sapienza University of Rome, Italy;4. Council of the Experts, Italian Ministry of Economy and Finance, Italy;5. European School of Political Economy, Luiss, Rome, Italy;6. Sogei SpA, Italy;7. Department of the Treasury, Italian Ministry of Economy and Finance, Italy |
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| Abstract: | The money multiplier collapsed in the USA in the wake of the Lehman crisis, and since then it remained at particularly low levels. The main reason for this collapse is to be found in the significant increase in banks’ excess reserves and the modest increase in deposits. The weak growth of deposits resulted from a contained growth of loans. Most scholars attribute the latter to the low propensity of banks to grant credit. Using quarterly data for the period 1991–2017 we estimate a demand for loans by firms and households. We show that the modest increase in deposits and the persistence of low levels of the US money multiplier has been due to the weak demand for loans by the private sector. |
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