Premium
Monetary Ratios in a Modern Regime: Why the Monetary Base still Matters
Author(s) -
Evans Anthony J.
Publication year - 2017
Publication title -
economic affairs
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.24
H-Index - 18
eISSN - 1468-0270
pISSN - 0265-0665
DOI - 10.1111/ecaf.12217
Subject(s) - monetary base , economics , currency , money supply , monetary economics , monetary policy , confusion , endogenous money , money measurement concept , criticism , monetary theory , keynesian economics , monetarism , demand deposit , velocity of money , law , psychology , political science , psychoanalysis
A recent paper Bank of England paper cast doubt on the ‘textbook’ model of the money multiplier. However, this criticism is inconsistent and misleading. It understates the importance of the central bank's control over the monetary base, and how this influences the money supply. The confusion suggests that it would be more fruitful to conduct analysis using the currency‐deposit ratio and reserve‐deposit ratio rather than the money multiplier, and evidence from 1998–2013 is provided. This article explains how these ratios depend on the monetary regime, and the distinction between inside and outside money. Although a modern regime alters the way that money creation occurs, the monetary base still matters.