清华大学货币银行学讲义（考研必备）ch4

1,Ch4. money supply: model & technique,What will you learn in this part：How changes in the money supply (MS) are reflected in commercial banks and central bank balance sheetsHow to analyses changes in the money supply through the monetary base and flow of funds models of money supply determinationEndogenous and exogenous of money supply The controlling techniques of monetary authority for the MS,2,4.1 balance sheet of bank, deposit reserves, mandatory reserve ratio,4.1.1 the balance sheet of commercial & central banks,Q: why banks hold non-interest rate-bearing (or low interest rate) asset such as Cb + Db?,Payment mechanism & balance of bank,3,Bank reserves is the total amount of money of banks deposits at central bank and the cash holding by bank. Reserve rate or ratio of reserve is a ratio of bank reserve to total deposits. The authorities usually require each bank at least to hold a amount of reserve that accord with the a minimum ratio of reserve regulated by the authorities. That ratio is called as mandatory reserve rate and the amount of reserve is called as mandatory reserve respectively.,4.1.2 several key conceptions 4.1.2 bank reserves, reserve rate, mandatory reserve rate (法定储备率), prudential ratio,4,4.In order to ensure not to be punished by central bank and to avoid the dilemma of shortage of reserve, bank usually hold reserves exceed the mandatory reserve. That extra reserve is called as “prudential reserves”. (超额储备)5. The banks usually also have borrowing from the central bank, hence, the total reserves minus borrow from the central bank are called as “non-borrowed reserves”.6. The free reserves is the reserves that the total reserve minus the total of mandatory and borrowed reserves. This kind of reserve usually are freely decided by bank about its portfolio.,5,4.2 the process of money creation:two commercial and a central banks system,1. Bank A provides loans to a customer “a1”, and “a1”pay to “b1” who is a customer of Bank B.2. Bank B provides loans to a customer “b2”, and “b2”pay to “a2” who a customer of Bank A.,6,7,Does shortcomings leave the monetary base multiplier model?Multiplier approach places the portfolio decision of banks within a straitjacket. Bank reserves automatically back private sector lending, for which there is an assumed ready demand, interest rates playing no role, hence the portfolio approach is not considered.Demand for cash may also negatively related to interest rates. This could be analyzed in manner analogous to the inventory-theoretic approach ( Baumol 1952) .It is clearly an oversimplification to see the money supply process as a constant causal relation from monetary base to money stock. Not only is the value of multiplier likely to change, but the process of monetary expansion is likely to feed back on the supply of the monetary base itself. (ex: increase finance of the public sector deficit),8,4.4.1 The model: components of MS & public debts,4.4. Supply of money (the Flow of Funds Approach),9,（1）flow of funds model focuses upon flow; the BMM focuses upon stocks（2）flow of funds model does not include any transactions between the banking system and the monetary authorities. BMM may imply that the controlling money supply requires either that the authorities control the quantity demand for loan or that they control banks ability to respond to the demand.（3）flow of funds model includes bank lending to the private sector, it focuses upon the demand for credit by both the public and private sectors. Given the many different ways in which both the public and private sectors can borrow, it follows that there many loan-related flows which could have some impact upon the money supply.,4.4.2 Flow of funds model VS. base-multiplier model,10,（4）the flow of funds model clearly demonstrate the relationship among the money supply and the sizes of fiscal deficits, government debts, change of foreign currency reserves. The model demonstrates that fiscal deficits as well as the intervention of foreign currency market will have strong influence on change of stock of money （5）the deference of the assumptions of two models: BMM creates the conception of “monetary base”. It implies that monetary authorities have great power to manipulate money supply, namely it means that the money supply is exogenous determinated. (6) Oppositely, the FF model demonstrate that the demand of loan from private sector and trade surplus (deficits) have great influence on money supply. It imply that the private sector rather than monetary authorities have strong power to decide the stock and change of the money supply. Hence, the FF model usually means that the money stock is decide by economic demand not by the decision of the authorities. Money supply is endogenous decide by economy.,11,exogenous of money supply means that the supply of money can be decided by the monetary authorities. If the money supply itself can not influenced by other economic factors, such as interest rate, demand of credit, the supply of money is recognized as “Completely exogenous ”.Endogenous of money supply means that money stock can not decided by the monetary authorities. Money supply is determinated by the real variable such as real output growth, demand of credit, as well as the behaviors of private sectors, the authorities only have limited influence on the money stock and flows of the money.Why we interested in exogenous and endogenous of money supply?Effects of the monetary policyTarget (interest rate or money supply)Instrument (short term rate or growth of money supply).,M,Completely exogenous money,Exogenous/endogenous money with some interest elasticity,i,4.5 endogenous内生or exogenous外生of money supply,12,4.6 Policies of controlling the money supply & effects of the policies,(1). Relative price adjustment on bank depositsPolicy: rise (reduce) official interest rates (short-term)Effects: the policy causes all short-term rates to rise (reduce) in sympathy. However, if deposit rates can be held down, the return on non-money assets rises relative to money and agents will be less willing to hold money. That will reduces the money supply, or rate of growth of Ms,(2). Quantity controlling on depositsPolicy: Regulations on the rate of growth of deposits were a feature of quantity controlling on bank deposits. “supplementary special deposit scheme” during the 1970s of US., and 80s of China. Effects: it was effective in quite short term. It caused “disintermediation”, distortion behaviors (interest rate/commissions; trust deposit/loan; set-up non-bank financial institutions ), deregulation & innovative behavior. (the policy encourage innovative behaviors to undermine the regulations),13,(3). price on banks deposits at the central bankPolicy: This could mean varying the interest rate paid on banks deposits at the central bank. Alternatively, it could refer to changes in rediscount or lender of last resort rate. effects: A rise in rates would encourage banks to hold more reserves, “reserve rate” would increase and multiplier and money supply would fall. An increase raises the cost to banks of being short of reserves and having to borrow from the central bank, this would encourage banks to be more cautious, increasing “reserve rate” and reducing the multiplier and money supply.,(4). Changing the quantity of reserves on bankers deposits Policy: to buy/sell treasury bonds, bills or others F-instrument at opening market. liEffects: This policy is often presented as the major method of monetary control. The authorities use of open market operations is often as obvious technique of monetary control.,14,（5）price adjustment on banks holdings of government securitiesPolicy: authorities increase the rate of interest offered on government bonds in order to allure bank & private sector to hold bonds. Effects: provided that the government does not spend the funds in receives from banks, banks reserve ratio would fallen, rise official interest rates intended to reduce the money supply. Interest rate increase may course money demand reduce,(6) quantity effects on banks holdings of government securitiesPolicy: require banks to hold certain part of governments securities by special regulation.Effects: the policy has broadly similar effects upon the money supply and on bank liquidity to those resulting from price. This policy generally rejected now along with most direct controls. Addition: effects of “Basle Accord”. li,15,(8) quantity effects on bank loans to the non-bank private sectorPolicy: Quantity controls usually consisted of target rates of growth of bank credit being laid down by the central bank, with penalties if they were exceeded.Effects: the policy avoided fluctuations in interest rates. In particular, a tight monetary policy could be operated without high interest rates. However it has shortcoming of direct control (non-price rationing).,（7）Price adjustment on bank loan to the non-bank private sectorPolicy: central bank adjustment the rediscount rate or directly regulated on the interest rate of banks loan.Effects: When the central bank raise (lower) the level of short-term interest rates. Other things being equal, it moves the non-bank private sector up (down) its demand curve for bank credit. Assuming some negative interest-elasticity, bank loan fall (rise) and MS reduce.,16,（9） The size of PSBPolicy: adjustment size of PSB. Other things being equal, the larger the PSB the greater will be the amount that the government has to borrow from banks and, the greater the flow of new loans and deposits.Effect: However, adjusting the PSB for monetary control purposes is impractical at most of time.,(10) Price effects on government debt sales to the NBPLgPolicy: Selling government debt to the general public at interest rates higher than those currently prevailing interest rate.Effects： The policy is often a feature of a tight money policy. it is intended more to limit the quantity of new money c