Reforms in China’s Monetary Policy Reforms in China’s Monetary
Comments on the Conventional Money Supply Theories
tải về 1.53 Mb. Chế độ xem pdf
|
| Comments on the Conventional Money Supply Theories
9 The modern financial system consists of extremely complex and interrelated institutions, for instance, the central bank, commercial banks, savings and loan associations, trust institutions, and life insurance and pension funds. These institutions interact with residents and nonfinancial enterprises, deter- mining various types of return on assets and assets holdings. Different finan- cial institutions manage different types of financial assets and liabilities and create assets supply. In the supply of financial assets, we place more emphasis on money supply because it is closely related to economic targets such as moderate economic growth and monetary stability. If the money demand function is only determined by a single opportunity cost (e.g., T-bond interest rate), or the function is a money demand function that slides up and down, then the monetary authority can affect this oppor- tunity cost to reach the desired equilibrium of money stock. In this model, the money demand is endogenous compared to the money supply, while the money supply is exogenous compared to the money demand. In other words, the desired money supply is identical to the actual money supply, and the money demand is the only variable in the equilibrium. Usually, this serves as a precondition for the basic theories of money sup- ply decisions. In a simplified mechanism, the authority can change the money supply by changing the monetary base. In the (r, Ms) plane, the money sup- ply curve is perpendicular to the direction of “Ms.” However, once the money supply is determined by the relative interest rate vector, including the interest rate of money itself and the interest rate of other assets, it is necessary to have a behavioral model of a financial institution to determine the money stock. In this model, banks do not mechanically react to the change of base money but will estimate the marginal cost and marginal return before adjusting their balance sheets. All types of interest rates will be adjusted to achieve the supply and demand equilibrium of many assets (including the money) in the finan- cial system. The monetary base (MB) model and the flow of fund (FOF) model can be viewed as special examples for this competitive equilibrium models. 10 1. The Monetary Base Model Although the MB model is not realistic, it serves as an effective teaching tool to understand the process of money supply. 36 ● Reforms in China’s Monetary Policy First consider the dynamic process of banks’ creation of deposits. Under the actual precondition that banks deal with settlement, the expansion of bank loans will simultaneously increase banks’ deposits, leading to an increase of money. 11 If there are no other restrictions, the scale of banks and the cor- responding amount of money only depend on banks’ material resource costs and the public’s demand for loans. However, in practice, the nonbank public’s currency and payment demand as well as the monetary authority’s minimum reserves requirement place limits on this process. At any time point (for the average reserves requirement for a given period, such period may be deemed as a time point), Required Reserves (RR) equals to the product of Demand Deposit (D) and required reserves ratio (r). If the money only includes deposits, then it can be simplified as: RR = D*r = M*r M = RR/r (1.1) “1/r” is a simple bank multiplier. Make it equal to “K,” then M = RRK, and it may be changed as: K = M/RR (1.2). If the quantity of money = cash in circulation + deposits, then K = (C+D)/ RR = C/RR + 1/r. This equation is an identity, and a corresponding multi- plier will be obtained by dividing any variable by “M.” However, the monetary base theorists believe that the control of money supply relies on the monetary authority accurately controlling the monetary base and predicting several behavioral relationships between banks and non- bank private sectors. The monetary base is a liability item of the monetary authority or its net liability and usually consists of the currency and banks’ deposit balance in the central bank. Currency is the written debt certificate issued by the central bank and the difference between currency and banks’ deposits in the central bank lies in: (1) currency is a written certificate; and (2) currency may be held by non- bank sectors. Therefore, the monetary base may be categorized by the above standards or be divided into “received by the nonbank private sector (Rp)” and “received by banks (Rb).” Such classification is based on the purposes. Generally the currency held by banks should be included in the required reserves, therefore we make the classification according to different holders. For sure, this classification is only meaningful for statistics; it doesn’t say any- thing about the actual accounts. The money supply (Ms) is also defined as the cash held by the nonbank private sector (Cp) and the deposits in the banking system (D). Money is a kind of assets held by private sectors, so the Ms can be categorized by differ- ent forms. Then we have the following two models. Monetary Theory ● 37 Model I: Ms = Cp + D Bs = Rp + Rb Ms = B.m m = Ms/B = (Cp + D)/(Rp + Rb) = (Cp/D + 1)/(Rp/D + Rb/D) = ( α + 1)/( β p + β b) Ms = ( α + 1)/( β p + β b). B = m.B Note: α = Cp/D, β p = Rp/D, β b = Rb/D If the monetary base does not include the noncash assets that may be held by the nonbank sectors (in UK, the prescribed deposit reserves items include the commercial bills, etc.), then RP=CP, α = β p, Ms = ( α + 1)/( α + β b).B. Model II: Ms = Cp + D Bs = C + Lf Ms = B.m m = Ms/b = (Cp + D)/(C + Lf) = (Cp/D + 1)/(C/D + Lf/D) = ( α + 1)/( β c + β l) Note: α = Cp/D, β c = C/D, β l = Lf/D Ms = ( α + 1)/( β c + β l).B = m.B The equations produced by the above two models are identities or defini- tions of money multiplier, which make no behavioral sense. Take the logarithm of the equation “MS = mB” and then differentiate: & & & tải về 1.53 Mb. Chia sẻ với bạn bè của bạn:
|