1 of 64

2 of 64

MONEY,

BANKING, & �FINANCIAL �MARKETS

EC3073 | Tue. & Fri. | 9h00–10h20 | PL-1

3 of 64

4 of 64

No hike, again

5 of 64

6 of 64

YOUR

FACE�HERE

7 of 64

TODAY:

8 of 64

MONEY MULTIPLIER THEORY

9 of 64

M = m × MB

Money multiplier theory

10 of 64

MONEY

SUPPLY

MONETARY

BASE

MONEY

MULTIPLIER

=

Money multiplier theory

11 of 64

EMPIRICAL EVIDENCE

12 of 64

13 of 64

14 of 64

15 of 64

Death of the money multiplier

16 of 64

Dramatic increase in excess reserves

17 of 64

18 of 64

19 of 64

THE�GREAT�RECESSION

THE�GREAT�DEPRESSION

20 of 64

21 of 64

M = m × MB

Money multiplier theory

22 of 64

M = m × MB

Money multiplier theory

Unstable?

23 of 64

Bank willing to lend

Borrower willing to borrow

24 of 64

M = m × MB

Money multiplier theory

Reverse causality?

25 of 64

MONEY-SUPPLY TARGETING

26 of 64

Paul

Volker

27 of 64

Failure of money supply targeting

28 of 64

Milton

Friedman

29 of 64

QUANTITY THEORY OF MONEY

30 of 64

QUANTITY THEORY OF MONEY

of money

the price

level

31 of 64

Quantity theory of money

M × V = P × T

32 of 64

M × V ≡ P × T

with V ≡ (P × T) / M

33 of 64

Quantity theory of money

M × V = P × T

34 of 64

EMPIRICAL EVIDENCE

35 of 64

Photo from Zimbabwe during its recent hyperinflation

Photo from Germany

in the 1920s during its

hyperinflation

36 of 64

37 of 64

Quantity theory of money

M × V = P × T

Unstable?

38 of 64

Instability in the velocity of money

Velocity of the M1 money supply

39 of 64

Quantity theory of money

M × V = P × T

Reverse causality?

40 of 64

41 of 64

TOOLS & GOALS OF

MONETARY POLICY

42 of 64

open-market operations

discount-window lending

reserve requirements

Conventional tools

43 of 64

expanded open-market operations

expanded discount-window lending

interest on reserves

forward guidance

Unconventional tools

44 of 64

45 of 64

INFLATION

TARGETING

46 of 64

47 of 64

48 of 64

49 of 64

YOUR

FACE�HERE

50 of 64

51 of 64

QUANTITY THEORY OF HAIRPINS

52 of 64

QUANTITY THEORY OF HAIRPINS

of hairpins

the % of

women w/

long hair

53 of 64

Joan Robinson

54 of 64

QUALITY THEORY OF MONEY

55 of 64

HOMEWORK

56 of 64

MONEY,

BANKING, & �FINANCIAL �MARKETS

EC3073 | Tue. & Fri. | 9h00–10h20 | PL-1

57 of 64

is “Money” (http://thenounproject.com/term/money/931/) �by Nick Levesque, which is in the public domain.

is “Bank” (http://thenounproject.com/term/bank/23762/) �by Kelcey Benne from the Noun Project, used under a CC BY 3.0 license.

is “Profit” (http://thenounproject.com/term/profit/30373/) �by Shyam B. from the Noun Project, used under a CC BY 3.0 license.

Author’s claims to this work and attribution for others’ work.

This work is the sole responsibility of the author and not any institution with which the author is affiliated.

Except for the material listed below, this work is licensed under a CC Attribution-ShareAlike 4.0 International liscence (http://creativecommons.org/licenses/by-sa/4.0/). You are free to share and adapt this work for any purpose, but you must give appropriate credit, and you must share any adaptations under the same license.

The exceptions are as follows.

The author does not make claims to any of the other photos.

58 of 64

59 of 64

Dollarization

60 of 64

Dollarization

61 of 64

Currency board

62 of 64

Monetary union

63 of 64

Monetary union

64 of 64

SUPPLY & DEMAND MODEL OF

BANK RESERVES