Volume 28, Issue 2 (Summer 2023)
JPBUD 2023, 28(2): 3-44 |
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Esfahani M, Mahmoudzadeh A, Madanizadeh S A. (2023). Banks Money Creation and the Transmission Mechanism of Shocks. JPBUD. 28(2), 3-44. doi:10.61186/jpbud.28.2.3
URL: http://jpbud.ir/article-1-2217-en.html
URL: http://jpbud.ir/article-1-2217-en.html
1- Faculty of Management and Economics, Sharif University of Technology, Tehran, Iran
2- Department of Economics, Faculty of Management and Economics, Sharif University of Technology, Tehran, Iran , mahmoodzadeh@sharif.edu
3- Department of Economics, Faculty of Management and Economics, Sharif University of Technology, Tehran, Iran
2- Department of Economics, Faculty of Management and Economics, Sharif University of Technology, Tehran, Iran , mahmoodzadeh@sharif.edu
3- Department of Economics, Faculty of Management and Economics, Sharif University of Technology, Tehran, Iran
Abstract: (934 Views)
This paper investigates the implications of bank money creation by developing a New Keynesian model that incorporates price rigidity and financial frictions but without real rigidities. Banks play a dual role as intermediaries of loanable funds and creators of credit. Their unique ability to create credit stems from the acceptance of their liabilities as a medium of exchange by economic agents. While the microeconomics of banking literature has addressed this function as liquidity transformation, there is a lack of macro-level analysis on this topic. We compare our baseline model with two alternative models: one featuring banks solely as intermediaries of loanable funds and another based on deposit multiplier models. Our model demonstrates that when banks have access to investment deposits held by households, their money-creation power predominantly affects nominal variables in the economy.
Keywords: Money Creation, Transmission Mechanism, Credit Creation, Money Multiplier, Financial Intermediation.
Type of Study: Research |
Subject:
Macroeconomics
Received: Jun 30 2023 | Accepted: Sep 09 2023 | ePublished: Oct 30 2023
Received: Jun 30 2023 | Accepted: Sep 09 2023 | ePublished: Oct 30 2023
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