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Excess Liquidity and the Usefulness of the Money Multiplier

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  2. Economics, Finance, Business & Management
  3. Credit and Capital Markets – Kredit und Kapital
  4. Vol. 55, Issue 4
  5. pp. 457–488

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Berk, J., van den End, J. Excess Liquidity and the Usefulness of the Money Multiplier. Credit and Capital Markets – Kredit und Kapital, 55(4), 457-488. https://doi.org/10.3790/ccm.55.4.457
Berk, Jan Marc and van den End, Jan Willem "Excess Liquidity and the Usefulness of the Money Multiplier" Credit and Capital Markets – Kredit und Kapital 55.4, 2022, 457-488. https://doi.org/10.3790/ccm.55.4.457
Berk, Jan Marc/van den End, Jan Willem (2022): Excess Liquidity and the Usefulness of the Money Multiplier, in: Credit and Capital Markets – Kredit und Kapital, vol. 55, iss. 4, 457-488, [online] https://doi.org/10.3790/ccm.55.4.457
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Excess Liquidity and the Usefulness of the Money Multiplier

Berk, Jan Marc | van den End, Jan Willem

Credit and Capital Markets – Kredit und Kapital, Vol. 55 (2022), Iss. 4 : pp. 457–488

1 Citations (CrossRef)

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Duncker & Humblot
DOI
https://doi.org/10.3790/ccm.55.4.457
Language
English
Pages
32
Keywords

Author Details

Jan Marc Berk, De Nederlandsche Bank, the Netherlands; University of Groningen, the Netherlands.

Jan Willem van den End, De Nederlandsche Bank, the Netherlands; Vrije Universiteit, the Netherlands. Corresponding author.

Cited By

  1. МОНЕТАРНА ПОЛІТИКА І КРЕДИТНА ПІДТРИМКА ЕКОНОМІКИ В УМОВАХ ВІЙНИ ТА ГЛОБАЛЬНОЇ НЕСТАБІЛЬНОСТІ

    БУБЛИК, Євген

    Economy of Ukraine, Vol. 67 (2024), Iss. 10 (755) P.27

    https://doi.org/10.15407/economyukr.2024.10.027 [Citations: 0]

References

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  2. Acharya, V./Rajan, R. G. (2022): Liquidity, liquidity everywhere, not a drop to use – Why flooding banks with central bank reserves may not expand liquidity, CEPR Discussion Paper, DP16907.  Google Scholar
  3. Afonso, G./Kim, K./Martin, A./Nosal, A./Potter, S. M./Schulhofer-Wohl, S. (2020): Monetary Policy Implementation with an Ample Supply of Reserves, FRB Atlanta Working Paper, 2020-2.  Google Scholar
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  32. Van den End, J. W. (2019): Applying complexity theory to interest rates: evidence of critical transitions in the euro area, Credit and Capital Markets, 52(1), 1–33.  Google Scholar
  33. Werner, R. A. (2016): A lost century in economics: Three theories of banking and the conclusive evidence, International Review of Financial Analysis, 46, 361–379.  Google Scholar
  34. Woodford, M. (2003): Interest and prices, Princeton NJ: Princeton University Press.  Google Scholar
  35. Aberg, P./Corsi, M./Grossmann-Wirth, V./Hudepohl, T./Mudde, Y./Rosolin, T./Schobert, F. (2021): Demand for central bank reserves and monetary policy implementation frameworks: the case of the Eurosystem, ECB occasional paper, 282.  Google Scholar
  36. Acharya, V./Rajan, R. G. (2022): Liquidity, liquidity everywhere, not a drop to use – Why flooding banks with central bank reserves may not expand liquidity, CEPR Discussion Paper, DP16907.  Google Scholar
  37. Afonso, G./Kim, K./Martin, A./Nosal, A./Potter, S. M./Schulhofer-Wohl, S. (2020): Monetary Policy Implementation with an Ample Supply of Reserves, FRB Atlanta Working Paper, 2020-2.  Google Scholar
  38. Bekaert, G./Hoerova, M. (2014): The VIX, the variance premium and stock market volatility, ECB working paper, 1675.  Google Scholar
  39. Bernanke, B. S./Gertler, M. (1995): Inside the Black Box: The Credit Channel of Monetary Policy Transmission, Journal of Economic Perspectives, American Economic Association, 9(4), 27–48, Fall.  Google Scholar
  40. Bernanke, B. S./Mihov, I. (1998): Measuring Monetary Policy, The Quarterly Journal of Economics, 113(3), 869–902.  Google Scholar
  41. Berrospide, J. M./Edge, R. M. (2010): The Effects of Bank Capital on Lending: What Do We Know, and What Does It Mean?, International Journal of Central Banking, 6(34), 1–50.  Google Scholar
  42. Beyer, A./Nicoletti, G./Papadopoulou, N./Papsdorf, P./Rünstler, G./Schwarz, C./Sousa, J./Vergote, O. (2017): The transmission channels of monetary, macro- and microprudential policies and their interrelations, ECB occasional paper, 191.  Google Scholar
  43. Brunner, A. D. (1994): The federal funds rate and the implementation of monetary policy: estimating the Federal Reserve’s reaction function, International Finance Discussion paper, 466.  Google Scholar
  44. Brunnermeier, M. K./Eisenbach, T. M./Sannikov, Y. (2012): Macroeconomics with Financial Frictions: A Survey, NBER working paper, 18102.  Google Scholar
  45. Brunnermeier, M. K./Koby, Y. (2018): The Reversal Interest Rate, NBER working paper, 25406.  Google Scholar
  46. Deutsche Bundesbank (2016): The macroeconomic impact of quantitative easing in the euro area, Monthly Report, June 2016, 29–53.  Google Scholar
  47. Deutsche Bundesbank (2017): The role of banks, non-banks and the central bank in the money creation process, Monhtly Report, April 2017, 13–33.  Google Scholar
  48. Diamond, W./Jiang, Z./Ma, Y. (2021): The Reserve Supply Channel of Unconventional Monetary Policy, Jacobs Levy Equity Management Center for Quantitative Financial Research Paper.  Google Scholar
  49. Disyatat, P. (2008): Monetary policy implementation: Misconceptions and their consequences, BIS working paper, 269.  Google Scholar
  50. Friedman, M./Schwartz, A. J. (1963): A Monetary History of the United States, 1867–1960, National Bureau of Economic Research, Princeton, Princeton University Press.  Google Scholar
  51. Gertler, M./Gilchrist, S. (1993): The role of credit market imperfections in the monetary transmission mechanism: arguments and evidence, Scandinavian Journal of Economics, 43–64.  Google Scholar
  52. Gertler, M./ Karadi, P. (2013): QE 1 vs. 2 vs. 3.: A Framework for Analyzing Large-Scale Asset Purchases as a Monetary Policy Tool, International Journal of Central Banking, International Journal of Central Banking, 9(1), 5–53.  Google Scholar
  53. Goodfriend, M. (2000): Overcoming the zero lower bound on interest rate policy, Journal of Money, Credit and Banking, 32, 1007–1035.  Google Scholar
  54. Goodfriend, M. (2002): Interest on reserves and monetary policy, Federal Reserve Bank of New York Economic Policy Review, 8, 77–84.  Google Scholar
  55. Goodhart, C. A. E. (1989): Money, Information and Uncertainty, Macmillan.  Google Scholar
  56. Goodhart, C. A. E. (2009): The Continuing Muddles of Monetary Theory: A Steadfast Refusal to Face Facts, Economica, 76, 821–830.  Google Scholar
  57. Goodhart, C. A. E. (2010): Money, credit and bank behaviour: need for a new approach, National Institute Economic Review, 214, 74–82.  Google Scholar
  58. Goodhart, C. A. E./Jensen, M. (2015): Currency School versus Banking School: an ongoing confrontation, Economic Thought, 4(2), 20–31.  Google Scholar
  59. Horst, M./Neyer, U. (2019): The impact of quantitative easing on bank loan supply and monetary policy implementation in the euro area, Review of Economics, 70(3), 229–265.  Google Scholar
  60. Lagos, R. (2010): Inside and outside money, Monetary economics, in: S. N. Durlauf and L. E. Blume (eds), Monetary Economics, Palgrave Macmillan, London.  Google Scholar
  61. McLeay, M./Radia, A./Thomas, R. (2014): Money creation in the modern economy, Bank of England, Quarterly Bulletin 2014Q1.  Google Scholar
  62. Schumpeter, J. A. (1954): History of economic analysis, Oxford University Press.  Google Scholar
  63. Taylor, J. (1993): Discretion versus policy rules in practice, Carnegie-Rochester Conference Series on Public Policy, 39, 195–214.  Google Scholar
  64. Tobin, J. (1963): Commercial banks as creators of “money”, in: D. Carson (ed), Banking and Monetary Studies, Irwin Homewood, 408–419.  Google Scholar
  65. Tobin, J. (1969): A General Equilibrium Approach to Monetary Theory.” Journal of Money, Credit and Banking 1(1), 15–29.  Google Scholar
  66. Van den End, J. W. (2019): Applying complexity theory to interest rates: evidence of critical transitions in the euro area, Credit and Capital Markets, 52(1), 1–33.  Google Scholar
  67. Werner, R. A. (2016): A lost century in economics: Three theories of banking and the conclusive evidence, International Review of Financial Analysis, 46, 361–379.  Google Scholar
  68. Woodford, M. (2003): Interest and prices, Princeton NJ: Princeton University Press.  Google Scholar
  69. Aberg, P./Corsi, M./Grossmann-Wirth, V./Hudepohl, T./Mudde, Y./Rosolin, T./Schobert, F. (2021): Demand for central bank reserves and monetary policy implementation frameworks: the case of the Eurosystem, ECB occasional paper, 282.  Google Scholar
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  71. Afonso, G./Kim, K./Martin, A./Nosal, A./Potter, S. M./Schulhofer-Wohl, S. (2020): Monetary Policy Implementation with an Ample Supply of Reserves, FRB Atlanta Working Paper, 2020-2.  Google Scholar
  72. Bekaert, G./Hoerova, M. (2014): The VIX, the variance premium and stock market volatility, ECB working paper, 1675.  Google Scholar
  73. Bernanke, B. S./Gertler, M. (1995): Inside the Black Box: The Credit Channel of Monetary Policy Transmission, Journal of Economic Perspectives, American Economic Association, 9(4), 27–48, Fall.  Google Scholar
  74. Bernanke, B. S./Mihov, I. (1998): Measuring Monetary Policy, The Quarterly Journal of Economics, 113(3), 869–902.  Google Scholar
  75. Berrospide, J. M./Edge, R. M. (2010): The Effects of Bank Capital on Lending: What Do We Know, and What Does It Mean?, International Journal of Central Banking, 6(34), 1–50.  Google Scholar
  76. Beyer, A./Nicoletti, G./Papadopoulou, N./Papsdorf, P./Rünstler, G./Schwarz, C./Sousa, J./Vergote, O. (2017): The transmission channels of monetary, macro- and microprudential policies and their interrelations, ECB occasional paper, 191.  Google Scholar
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  79. Brunnermeier, M. K./Koby, Y. (2018): The Reversal Interest Rate, NBER working paper, 25406.  Google Scholar
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  81. Deutsche Bundesbank (2017): The role of banks, non-banks and the central bank in the money creation process, Monhtly Report, April 2017, 13–33.  Google Scholar
  82. Diamond, W./Jiang, Z./Ma, Y. (2021): The Reserve Supply Channel of Unconventional Monetary Policy, Jacobs Levy Equity Management Center for Quantitative Financial Research Paper.  Google Scholar
  83. Disyatat, P. (2008): Monetary policy implementation: Misconceptions and their consequences, BIS working paper, 269.  Google Scholar
  84. Friedman, M./Schwartz, A. J. (1963): A Monetary History of the United States, 1867–1960, National Bureau of Economic Research, Princeton, Princeton University Press.  Google Scholar
  85. Gertler, M./Gilchrist, S. (1993): The role of credit market imperfections in the monetary transmission mechanism: arguments and evidence, Scandinavian Journal of Economics, 43–64.  Google Scholar
  86. Gertler, M./ Karadi, P. (2013): QE 1 vs. 2 vs. 3.: A Framework for Analyzing Large-Scale Asset Purchases as a Monetary Policy Tool, International Journal of Central Banking, International Journal of Central Banking, 9(1), 5–53.  Google Scholar
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  88. Goodfriend, M. (2002): Interest on reserves and monetary policy, Federal Reserve Bank of New York Economic Policy Review, 8, 77–84.  Google Scholar
  89. Goodhart, C. A. E. (1989): Money, Information and Uncertainty, Macmillan.  Google Scholar
  90. Goodhart, C. A. E. (2009): The Continuing Muddles of Monetary Theory: A Steadfast Refusal to Face Facts, Economica, 76, 821–830.  Google Scholar
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  92. Goodhart, C. A. E./Jensen, M. (2015): Currency School versus Banking School: an ongoing confrontation, Economic Thought, 4(2), 20–31.  Google Scholar
  93. Horst, M./Neyer, U. (2019): The impact of quantitative easing on bank loan supply and monetary policy implementation in the euro area, Review of Economics, 70(3), 229–265.  Google Scholar
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  95. McLeay, M./Radia, A./Thomas, R. (2014): Money creation in the modern economy, Bank of England, Quarterly Bulletin 2014Q1.  Google Scholar
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  100. Van den End, J. W. (2019): Applying complexity theory to interest rates: evidence of critical transitions in the euro area, Credit and Capital Markets, 52(1), 1–33.  Google Scholar
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  105. Afonso, G./Kim, K./Martin, A./Nosal, A./Potter, S. M./Schulhofer-Wohl, S. (2020): Monetary Policy Implementation with an Ample Supply of Reserves, FRB Atlanta Working Paper, 2020-2.  Google Scholar
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  109. Berrospide, J. M./Edge, R. M. (2010): The Effects of Bank Capital on Lending: What Do We Know, and What Does It Mean?, International Journal of Central Banking, 6(34), 1–50.  Google Scholar
  110. Beyer, A./Nicoletti, G./Papadopoulou, N./Papsdorf, P./Rünstler, G./Schwarz, C./Sousa, J./Vergote, O. (2017): The transmission channels of monetary, macro- and microprudential policies and their interrelations, ECB occasional paper, 191.  Google Scholar
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  113. Brunnermeier, M. K./Koby, Y. (2018): The Reversal Interest Rate, NBER working paper, 25406.  Google Scholar
  114. Deutsche Bundesbank (2016): The macroeconomic impact of quantitative easing in the euro area, Monthly Report, June 2016, 29–53.  Google Scholar
  115. Deutsche Bundesbank (2017): The role of banks, non-banks and the central bank in the money creation process, Monhtly Report, April 2017, 13–33.  Google Scholar
  116. Diamond, W./Jiang, Z./Ma, Y. (2021): The Reserve Supply Channel of Unconventional Monetary Policy, Jacobs Levy Equity Management Center for Quantitative Financial Research Paper.  Google Scholar
  117. Disyatat, P. (2008): Monetary policy implementation: Misconceptions and their consequences, BIS working paper, 269.  Google Scholar
  118. Friedman, M./Schwartz, A. J. (1963): A Monetary History of the United States, 1867–1960, National Bureau of Economic Research, Princeton, Princeton University Press.  Google Scholar
  119. Gertler, M./Gilchrist, S. (1993): The role of credit market imperfections in the monetary transmission mechanism: arguments and evidence, Scandinavian Journal of Economics, 43–64.  Google Scholar
  120. Gertler, M./ Karadi, P. (2013): QE 1 vs. 2 vs. 3.: A Framework for Analyzing Large-Scale Asset Purchases as a Monetary Policy Tool, International Journal of Central Banking, International Journal of Central Banking, 9(1), 5–53.  Google Scholar
  121. Goodfriend, M. (2000): Overcoming the zero lower bound on interest rate policy, Journal of Money, Credit and Banking, 32, 1007–1035.  Google Scholar
  122. Goodfriend, M. (2002): Interest on reserves and monetary policy, Federal Reserve Bank of New York Economic Policy Review, 8, 77–84.  Google Scholar
  123. Goodhart, C. A. E. (1989): Money, Information and Uncertainty, Macmillan.  Google Scholar
  124. Goodhart, C. A. E. (2009): The Continuing Muddles of Monetary Theory: A Steadfast Refusal to Face Facts, Economica, 76, 821–830.  Google Scholar
  125. Goodhart, C. A. E. (2010): Money, credit and bank behaviour: need for a new approach, National Institute Economic Review, 214, 74–82.  Google Scholar
  126. Goodhart, C. A. E./Jensen, M. (2015): Currency School versus Banking School: an ongoing confrontation, Economic Thought, 4(2), 20–31.  Google Scholar
  127. Horst, M./Neyer, U. (2019): The impact of quantitative easing on bank loan supply and monetary policy implementation in the euro area, Review of Economics, 70(3), 229–265.  Google Scholar
  128. Lagos, R. (2010): Inside and outside money, Monetary economics, in: S. N. Durlauf and L. E. Blume (eds), Monetary Economics, Palgrave Macmillan, London.  Google Scholar
  129. McLeay, M./Radia, A./Thomas, R. (2014): Money creation in the modern economy, Bank of England, Quarterly Bulletin 2014Q1.  Google Scholar
  130. Schumpeter, J. A. (1954): History of economic analysis, Oxford University Press.  Google Scholar
  131. Taylor, J. (1993): Discretion versus policy rules in practice, Carnegie-Rochester Conference Series on Public Policy, 39, 195–214.  Google Scholar
  132. Tobin, J. (1963): Commercial banks as creators of “money”, in: D. Carson (ed), Banking and Monetary Studies, Irwin Homewood, 408–419.  Google Scholar
  133. Tobin, J. (1969): A General Equilibrium Approach to Monetary Theory.” Journal of Money, Credit and Banking 1(1), 15–29.  Google Scholar
  134. Van den End, J. W. (2019): Applying complexity theory to interest rates: evidence of critical transitions in the euro area, Credit and Capital Markets, 52(1), 1–33.  Google Scholar
  135. Werner, R. A. (2016): A lost century in economics: Three theories of banking and the conclusive evidence, International Review of Financial Analysis, 46, 361–379.  Google Scholar
  136. Woodford, M. (2003): Interest and prices, Princeton NJ: Princeton University Press.  Google Scholar
  137. Aberg, P./Corsi, M./Grossmann-Wirth, V./Hudepohl, T./Mudde, Y./Rosolin, T./Schobert, F. (2021): Demand for central bank reserves and monetary policy implementation frameworks: the case of the Eurosystem, ECB occasional paper, 282.  Google Scholar
  138. Acharya, V./Rajan, R. G. (2022): Liquidity, liquidity everywhere, not a drop to use – Why flooding banks with central bank reserves may not expand liquidity, CEPR Discussion Paper, DP16907.  Google Scholar
  139. Afonso, G./Kim, K./Martin, A./Nosal, A./Potter, S. M./Schulhofer-Wohl, S. (2020): Monetary Policy Implementation with an Ample Supply of Reserves, FRB Atlanta Working Paper, 2020-2.  Google Scholar
  140. Bekaert, G./Hoerova, M. (2014): The VIX, the variance premium and stock market volatility, ECB working paper, 1675.  Google Scholar
  141. Bernanke, B. S./Gertler, M. (1995): Inside the Black Box: The Credit Channel of Monetary Policy Transmission, Journal of Economic Perspectives, American Economic Association, 9(4), 27–48, Fall.  Google Scholar
  142. Bernanke, B. S./Mihov, I. (1998): Measuring Monetary Policy, The Quarterly Journal of Economics, 113(3), 869–902.  Google Scholar
  143. Berrospide, J. M./Edge, R. M. (2010): The Effects of Bank Capital on Lending: What Do We Know, and What Does It Mean?, International Journal of Central Banking, 6(34), 1–50.  Google Scholar
  144. Beyer, A./Nicoletti, G./Papadopoulou, N./Papsdorf, P./Rünstler, G./Schwarz, C./Sousa, J./Vergote, O. (2017): The transmission channels of monetary, macro- and microprudential policies and their interrelations, ECB occasional paper, 191.  Google Scholar
  145. Brunner, A. D. (1994): The federal funds rate and the implementation of monetary policy: estimating the Federal Reserve’s reaction function, International Finance Discussion paper, 466.  Google Scholar
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  181. Brunnermeier, M. K./Koby, Y. (2018): The Reversal Interest Rate, NBER working paper, 25406.  Google Scholar
  182. Deutsche Bundesbank (2016): The macroeconomic impact of quantitative easing in the euro area, Monthly Report, June 2016, 29–53.  Google Scholar
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  185. Disyatat, P. (2008): Monetary policy implementation: Misconceptions and their consequences, BIS working paper, 269.  Google Scholar
  186. Friedman, M./Schwartz, A. J. (1963): A Monetary History of the United States, 1867–1960, National Bureau of Economic Research, Princeton, Princeton University Press.  Google Scholar
  187. Gertler, M./Gilchrist, S. (1993): The role of credit market imperfections in the monetary transmission mechanism: arguments and evidence, Scandinavian Journal of Economics, 43–64.  Google Scholar
  188. Gertler, M./ Karadi, P. (2013): QE 1 vs. 2 vs. 3.: A Framework for Analyzing Large-Scale Asset Purchases as a Monetary Policy Tool, International Journal of Central Banking, International Journal of Central Banking, 9(1), 5–53.  Google Scholar
  189. Goodfriend, M. (2000): Overcoming the zero lower bound on interest rate policy, Journal of Money, Credit and Banking, 32, 1007–1035.  Google Scholar
  190. Goodfriend, M. (2002): Interest on reserves and monetary policy, Federal Reserve Bank of New York Economic Policy Review, 8, 77–84.  Google Scholar
  191. Goodhart, C. A. E. (1989): Money, Information and Uncertainty, Macmillan.  Google Scholar
  192. Goodhart, C. A. E. (2009): The Continuing Muddles of Monetary Theory: A Steadfast Refusal to Face Facts, Economica, 76, 821–830.  Google Scholar
  193. Goodhart, C. A. E. (2010): Money, credit and bank behaviour: need for a new approach, National Institute Economic Review, 214, 74–82.  Google Scholar
  194. Goodhart, C. A. E./Jensen, M. (2015): Currency School versus Banking School: an ongoing confrontation, Economic Thought, 4(2), 20–31.  Google Scholar
  195. Horst, M./Neyer, U. (2019): The impact of quantitative easing on bank loan supply and monetary policy implementation in the euro area, Review of Economics, 70(3), 229–265.  Google Scholar
  196. Lagos, R. (2010): Inside and outside money, Monetary economics, in: S. N. Durlauf and L. E. Blume (eds), Monetary Economics, Palgrave Macmillan, London.  Google Scholar
  197. McLeay, M./Radia, A./Thomas, R. (2014): Money creation in the modern economy, Bank of England, Quarterly Bulletin 2014Q1.  Google Scholar
  198. Schumpeter, J. A. (1954): History of economic analysis, Oxford University Press.  Google Scholar
  199. Taylor, J. (1993): Discretion versus policy rules in practice, Carnegie-Rochester Conference Series on Public Policy, 39, 195–214.  Google Scholar
  200. Tobin, J. (1963): Commercial banks as creators of “money”, in: D. Carson (ed), Banking and Monetary Studies, Irwin Homewood, 408–419.  Google Scholar
  201. Tobin, J. (1969): A General Equilibrium Approach to Monetary Theory.” Journal of Money, Credit and Banking 1(1), 15–29.  Google Scholar
  202. Van den End, J. W. (2019): Applying complexity theory to interest rates: evidence of critical transitions in the euro area, Credit and Capital Markets, 52(1), 1–33.  Google Scholar
  203. Werner, R. A. (2016): A lost century in economics: Three theories of banking and the conclusive evidence, International Review of Financial Analysis, 46, 361–379.  Google Scholar
  204. Woodford, M. (2003): Interest and prices, Princeton NJ: Princeton University Press.  Google Scholar
  205. Aberg, P./Corsi, M./Grossmann-Wirth, V./Hudepohl, T./Mudde, Y./Rosolin, T./Schobert, F. (2021): Demand for central bank reserves and monetary policy implementation frameworks: the case of the Eurosystem, ECB occasional paper, 282.  Google Scholar
  206. Acharya, V./Rajan, R. G. (2022): Liquidity, liquidity everywhere, not a drop to use – Why flooding banks with central bank reserves may not expand liquidity, CEPR Discussion Paper, DP16907.  Google Scholar
  207. Afonso, G./Kim, K./Martin, A./Nosal, A./Potter, S. M./Schulhofer-Wohl, S. (2020): Monetary Policy Implementation with an Ample Supply of Reserves, FRB Atlanta Working Paper, 2020-2.  Google Scholar
  208. Bekaert, G./Hoerova, M. (2014): The VIX, the variance premium and stock market volatility, ECB working paper, 1675.  Google Scholar
  209. Bernanke, B. S./Gertler, M. (1995): Inside the Black Box: The Credit Channel of Monetary Policy Transmission, Journal of Economic Perspectives, American Economic Association, 9(4), 27–48, Fall.  Google Scholar
  210. Bernanke, B. S./Mihov, I. (1998): Measuring Monetary Policy, The Quarterly Journal of Economics, 113(3), 869–902.  Google Scholar
  211. Berrospide, J. M./Edge, R. M. (2010): The Effects of Bank Capital on Lending: What Do We Know, and What Does It Mean?, International Journal of Central Banking, 6(34), 1–50.  Google Scholar
  212. Beyer, A./Nicoletti, G./Papadopoulou, N./Papsdorf, P./Rünstler, G./Schwarz, C./Sousa, J./Vergote, O. (2017): The transmission channels of monetary, macro- and microprudential policies and their interrelations, ECB occasional paper, 191.  Google Scholar
  213. Brunner, A. D. (1994): The federal funds rate and the implementation of monetary policy: estimating the Federal Reserve’s reaction function, International Finance Discussion paper, 466.  Google Scholar
  214. Brunnermeier, M. K./Eisenbach, T. M./Sannikov, Y. (2012): Macroeconomics with Financial Frictions: A Survey, NBER working paper, 18102.  Google Scholar
  215. Brunnermeier, M. K./Koby, Y. (2018): The Reversal Interest Rate, NBER working paper, 25406.  Google Scholar
  216. Deutsche Bundesbank (2016): The macroeconomic impact of quantitative easing in the euro area, Monthly Report, June 2016, 29–53.  Google Scholar
  217. Deutsche Bundesbank (2017): The role of banks, non-banks and the central bank in the money creation process, Monhtly Report, April 2017, 13–33.  Google Scholar
  218. Diamond, W./Jiang, Z./Ma, Y. (2021): The Reserve Supply Channel of Unconventional Monetary Policy, Jacobs Levy Equity Management Center for Quantitative Financial Research Paper.  Google Scholar
  219. Disyatat, P. (2008): Monetary policy implementation: Misconceptions and their consequences, BIS working paper, 269.  Google Scholar
  220. Friedman, M./Schwartz, A. J. (1963): A Monetary History of the United States, 1867–1960, National Bureau of Economic Research, Princeton, Princeton University Press.  Google Scholar
  221. Gertler, M./Gilchrist, S. (1993): The role of credit market imperfections in the monetary transmission mechanism: arguments and evidence, Scandinavian Journal of Economics, 43–64.  Google Scholar
  222. Gertler, M./ Karadi, P. (2013): QE 1 vs. 2 vs. 3.: A Framework for Analyzing Large-Scale Asset Purchases as a Monetary Policy Tool, International Journal of Central Banking, International Journal of Central Banking, 9(1), 5–53.  Google Scholar
  223. Goodfriend, M. (2000): Overcoming the zero lower bound on interest rate policy, Journal of Money, Credit and Banking, 32, 1007–1035.  Google Scholar
  224. Goodfriend, M. (2002): Interest on reserves and monetary policy, Federal Reserve Bank of New York Economic Policy Review, 8, 77–84.  Google Scholar
  225. Goodhart, C. A. E. (1989): Money, Information and Uncertainty, Macmillan.  Google Scholar
  226. Goodhart, C. A. E. (2009): The Continuing Muddles of Monetary Theory: A Steadfast Refusal to Face Facts, Economica, 76, 821–830.  Google Scholar
  227. Goodhart, C. A. E. (2010): Money, credit and bank behaviour: need for a new approach, National Institute Economic Review, 214, 74–82.  Google Scholar
  228. Goodhart, C. A. E./Jensen, M. (2015): Currency School versus Banking School: an ongoing confrontation, Economic Thought, 4(2), 20–31.  Google Scholar
  229. Horst, M./Neyer, U. (2019): The impact of quantitative easing on bank loan supply and monetary policy implementation in the euro area, Review of Economics, 70(3), 229–265.  Google Scholar
  230. Lagos, R. (2010): Inside and outside money, Monetary economics, in: S. N. Durlauf and L. E. Blume (eds), Monetary Economics, Palgrave Macmillan, London.  Google Scholar
  231. McLeay, M./Radia, A./Thomas, R. (2014): Money creation in the modern economy, Bank of England, Quarterly Bulletin 2014Q1.  Google Scholar
  232. Schumpeter, J. A. (1954): History of economic analysis, Oxford University Press.  Google Scholar
  233. Taylor, J. (1993): Discretion versus policy rules in practice, Carnegie-Rochester Conference Series on Public Policy, 39, 195–214.  Google Scholar
  234. Tobin, J. (1963): Commercial banks as creators of “money”, in: D. Carson (ed), Banking and Monetary Studies, Irwin Homewood, 408–419.  Google Scholar
  235. Tobin, J. (1969): A General Equilibrium Approach to Monetary Theory.” Journal of Money, Credit and Banking 1(1), 15–29.  Google Scholar
  236. Van den End, J. W. (2019): Applying complexity theory to interest rates: evidence of critical transitions in the euro area, Credit and Capital Markets, 52(1), 1–33.  Google Scholar
  237. Werner, R. A. (2016): A lost century in economics: Three theories of banking and the conclusive evidence, International Review of Financial Analysis, 46, 361–379.  Google Scholar
  238. Woodford, M. (2003): Interest and prices, Princeton NJ: Princeton University Press.  Google Scholar

Abstract

We model the behaviour of banks as a main driver of the changing components of the money multiplier (MM). So we provide behavioural underpinnings for the supply and demand for inside and outside money. We illustrate how the creation of large outside money balances by central banks induces behavioural changes, creating an environment characterised by a low MM and low market interest rates. The low regime reflects a state in which the functioning of the financial system changes fundamentally due to excess supply of reserves. This so-called excess liquidity trap has adverse economic consequences, is persistent, and cannot be solved by monetary policy alone. We argue that government and supervisory measures taken during the pandemic provide an example of supporting policies that are effective in escaping the excess liquidity trap.

Table of Contents

Section Title Page Action Price
Jan Marc Berk / Jan Willem van den End: Excess Liquidity and the Usefulness of the Money Multiplier 457
Abstract 457
I. Introduction 457
II. Money Concepts 459
III. Model Framework 462
1. Market for Reserve Balances 463
2. Bank Loan Market 466
3. Deposit Market 468
4. Regimes in the Reserves Market 472
5. Frictions in the Bank Loan Market 473
6. Linking Inside and Outside Money 474
7. Impact of QE 475
IV. Money Multiplier Dynamics 478
1. Evolution across Time 478
2. Marginal Multiplier in the Pandemic 479
V. Discussion and Policy Implications 483
VI. Conclusion 484
References 485
Annex 487

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