Money creation under full-reserve banking: A stock-flow consistent model

Arbeitspapier

This paper presents a stock-flow consistent model+ of full-reserve banking. It is found that in a steady state, full-reserve banking can accommodate a zero-growth economy and provide both full employment and zero inflation. Furthermore, a money creation experiment is conducted with the model. An increase in central bank reserves translates into a two-thirds increase in demand deposits. Money creation through government spending leads to a temporary increase in real GDP and inflation. Surprisingly, it also leads to a permanent reduction in consolidated government debt. The claims that full-reserve banking would precipitate a credit crunch or excessively volatile interest rates are found to be baseless.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 851

Classification and Topics

• Classification: Wirtschaft ; Macroeconomics: Consumption, Saving, Production, Employment, and Investment: Forecasting and Simulation: Models and Applications ; Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems ; Money Supply; Credit; Money Multipliers
• Subject: Full-reserve Banking ; Stock-flow Consistency ; Money Creation ; Banking System

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Lainà, Patrizio
• Event: Veröffentlichung
• (who): Levy Economics Institute of Bard College
• (where): Annandale-on-Hudson, NY
• (when): 2015

Further information

• Handle: http://hdl.handle.net/10419/146979
• Last update: 10.03.2025, 11:44 AM CET