scholarly journals Bank Lending, Financial Frictions, and Inside Money Creation

2019 ◽  
Author(s):  
Lukas Altermatt
Keyword(s):  
Financial Frictions ◽  
Bank Lending ◽  
Inside Money ◽  
Money Creation

BANKS' PRECAUTIONARY CAPITAL AND CREDIT CRUNCHES

2013 ◽  
Vol 18 (8) ◽  
pp. 1726-1750 ◽  
Author(s):  
Fabián Valencia
Keyword(s):  
Interest Rate ◽  
Financial Frictions ◽  
Balance Sheet ◽  
Bank Lending ◽  
Share Price ◽  
Volatility Clustering ◽  
Asymmetric Response ◽  
Precautionary Motive ◽  
Nonlinear Nature ◽  
Negative Shock

This paper develops a bank model to study supply-driven contractions in credit or credit crunches. In the model, the bank is affected by financial frictions in raising external funds. These frictions imply that the bank repairs its balance sheet only gradually following a negative shock that weakens the bank's capital position. Consequently, there is persistency in the response of bank lending even when the original shock (productivity or interest rate) is i.i.d. The nonlinear nature of these financial frictions also generates (i) a precautionary motive even with risk-neutral shareholders: the bank increases its desired level of capital if risk increases; (ii) an asymmetric response of lending: negative disturbances can have a bigger impact than positive ones; and (iii) volatility clustering in risk spreads and the bank's share price.

scholarly journals Monetary Policy for a Bubbly World

2020 ◽  
Author(s):  
Vladimir Asriyan ◽  
Luca Fornaro ◽  
Alberto Martin ◽  
Jaume Ventura
Keyword(s):  
Monetary Policy ◽  
Private Sector ◽  
Central Bank ◽  
Financial Frictions ◽  
Optimal Monetary Policy ◽  
Future Value ◽  
Money Creation ◽  
The Creation

Abstract What is the role of monetary policy in a bubbly world? To address this question, we study an economy in which financial frictions limit the supply of assets. The ensuing scarcity generates a demand for “unbacked” assets, i.e., assets that are backed only by the expectation of their future value. We consider two types of unbacked assets: bubbles, which are created by the private sector, and money, which is created by the central bank. Bubbles and money share many features, but they also differ in two crucial respects. First, while the rents from the creation of bubbles accrue to entrepreneurs and foster investment, the rents from money creation accrue to the central bank. Second, while bubbles are driven by market psychology, and can rise and fall according to the whims of the market, money is under the control of the central bank. We characterize the optimal monetary policy and show that, through its ability to supply assets, monetary policy plays a key role in the bubbly world. The model sheds light on the recent expansion of central bank liabilities in response to the bursting of bubbles.

scholarly journals The theory of endogenous money and the LM schedule: prelude to a reconstruction of ISLM

2017 ◽  
Vol 37 (1) ◽  
pp. 3-22 ◽  
Author(s):  
THOMAS I. PALLEY
Keyword(s):  
Interest Rates ◽  
Money Supply ◽  
Bank Lending ◽  
Macroeconomic Theory ◽  
Preference Theory ◽  
Money Multiplier ◽  
Keynesian Theory ◽  
Money Economy ◽  
Endogenous Money ◽  
Money Creation

ABSTRACT Money is at the center of macroeconomics, which makes understanding the money supply central for macroeconomic theory. This paper presents the Post Keynesian theory of endogenous money supply and shows how it is fundamentally different from the conventional money supply theory. The conventional approach relies on the money multiplier and bank lending is invisible. Post Keynesian theory discards the money multiplier and focuses on bank lending which drives money creation. The paper emphasizes the structuralist version of Post Keynesian theory which retains Keynes’ liquidity preference theory of long term interest rates and also recognizes banks are subject to financial constraints that limit their lending activities. The paper then shows how to derive the LM schedule in an endogenous money economy, which is a necessary prelude to reconstructing the ISLM model.

Money multiplier in the context of modern views on money creation: theory and facts

2018 ◽  
pp. 50-69 ◽  
Author(s):  
V. O. Grishchenko
Keyword(s):  
Bank Lending ◽  
Central Banks ◽  
Financial Systems ◽  
Balance Sheets ◽  
Var Analysis ◽  
Money Multiplier ◽  
Long Period ◽  
Money Creation ◽  
Bank Reserves

For a long period of time, multiple money expansion has been regarded empirically proven. Nevertheless, in recent decades it has been widely disputed, particularly in the publications of central banks and those of the BIS. In this paper we show that multiple money expansion is characteristic of underdeveloped financial systems. In the era of multiple money expansion the volume of lending was limited by the supply of bank reserves. Today, however, the main constraint is the demand for credit. This is supported by our analysis of banks’ balance sheets as well as VAR analysis of factors of bank lending in Russia in 2005—2017.

scholarly journals The Effect of Monetary Policy on Bank Wholesale Funding

2020 ◽  
Author(s):  
Dong Beom Choi ◽  
Hyun-Soo Choi
Keyword(s):  
Monetary Policy ◽  
Banking Sector ◽  
Financial Frictions ◽  
Bank Lending ◽  
Monetary Policy Transmission ◽  
Bank Lending Channel ◽  
Lending Channel ◽  
Policy Transmission ◽  
Effect Of Monetary Policy

We study how monetary policy affects the funding composition of the banking sector. When monetary tightening reduces the supply of retail deposits, banks attempt to substitute wholesale funding for deposit outflows to smooth their lending. Because of financial frictions, banks have varying degrees of access to wholesale funding. Therefore, large banks, or those with greater reliance on wholesale funding, increase their wholesale funding more. Consequently, monetary tightening increases both the reliance on and the concentration of wholesale funding within the banking sector. Our findings also suggest that liquidity requirements could bolster monetary policy transmission through the bank lending channel. This paper was accepted by Tyler Shumway, finance.

The end of Alchemy of Finance and Sovereign Money (on the books by M. King “The end of Alchemy: Money, Banking and the Future of the Global Economy” and by J. Huber “Sovereign Money. Beyond Reserve Banking”)

2017 ◽  
pp. 131-141 ◽  
Author(s):  
V. Yefimov
Keyword(s):  
Economic Policy ◽  
Central Bank ◽  
Institutional Theory ◽  
Money Supply ◽  
Government Spending ◽  
Global Economy ◽  
Private Banks ◽  
Money Creation ◽  
Ministry Of Finance ◽  
Reserve Banking

The review discusses the institutional theory of money considered in the books by King and Huber, and the conclusions that follow from it for economic policy. In accordance with this theory, at present the most of the money supply is created not by the Central Bank but by private banks. When a bank issues a loan, new money is created, and when the loan is repaid this money is destructed. The concept of sovereign money involves the monopoly of money creation of the central bank. In this case the most of newly created money is handed over to the ministry of finance to implement government spending.

The world and Russia: Inflation is minimal, economic growth is slowing, risks are rising

2019 ◽  
pp. 5-23 ◽  
Author(s):  
Mikhail V. Ershov ◽  
Anna S. Tanasova
Keyword(s):  
Economic Growth ◽  
Financial Markets ◽  
World Economy ◽  
Domestic Demand ◽  
New Combination ◽  
Russian Economy ◽  
The World ◽  
World Economic ◽  
Money Creation ◽  
Main Factors

Russian economy has reached the low level of inflation, but economic growth has not accelerated. Moreover, according to official forecasts, in the following years it will still be low. The article concludes that domestic demand, which is one of the main factors of growth, is significantly constrained by monetary, budgetary and fiscal spheres. The situation in the Russian economy is still hampered by the decline of the world economic growth. The prospects of financial markets are highly uncertain. This increases the possibility of crisis in the world. Leading countries widely use non-traditional measures to support their economies in the similar environment. In the world economy as well as in Russia a principally new combination of factors has emerged, which create specific features of economic growth. It requires special set of measures to stimulate such growth. The article proves that Russian regulators have large unused potential to stimulate growth. It includes monetization, long-money creation, budget and tax stimuli. It is important that the instruments, which will be used, should be based on domestic mechanisms. This will strengthen financial basis of the economy and may encourage economic growth. Some specific suggestions as to their use are made.

Agrarian receipts as a tool for the structural transformation of financial and credit relations in the agrarian business of the region

2019 ◽  
pp. 40-53
Author(s):  
Yuliia Nehoda
Keyword(s):  
Comparative Analysis ◽  
Retrospective Analysis ◽  
Structural Transformation ◽  
Pilot Project ◽  
Bank Lending ◽  
Economic Benefits ◽  
Advantages And Disadvantages ◽  
New Instrument ◽  
Agricultural Business ◽  
Business Entities

The subject of the research – is a set of organizational-economic relations arising in the process of structural transformation of financial and credit relations in the agricultural business. The purpose of the article is a retrospective analysis of structural transformations of financial and credit relations in the agricultural business, evaluation of the effectiveness and feasibility of the introduction of agricultural receipts as a new instrument of lending to the agricultural business of the regions. Methodology of work – system-structural and comparative analyzes (to determine the effectiveness of the crediting mechanism according to the agricultural receipts of the farmers of the region); monographic (when studying the problems of the functioning of the mechanism of lending to agrarians by agrarian receipts) economic analysis (when carrying out a comparative analysis of the mechanism of classical bank lending to the agrarian business and the mechanism of lending to agrarians according to agrarian receipts); modeling and forecasting (when determining ways to overcome the existing deficiencies in the mechanism of lending to agrarian business entities of the region according to agrarian receipts). The results of the work – a retrospective analysis of the structural transformation of financial and credit relations in the agricultural business was carried out. The mechanism of crediting agrarians according to agrarian receipts and the scale of its distribution in the agrarian business of the region are considered. A comparative analysis of the mechanism of classical bank lending to the agrarian business and the mechanism of lending to agrarians according to agrarian receipts was carried out. In the framework of the pilot project “Agrarian receipts in Ukraine” of the international financial corporation (IFC) in partnership with the Swiss Confederation in Ukraine, the example of the Poltava region defined the effectiveness of the crediting mechanism according to the agrarian receipts of the agrarians of the region. The advantages and disadvantages of the mechanism of crediting the subjects of the agrarian business on agrarian receipts are noted. The ways to overcome the existing shortcomings of the mechanism of crediting the subjects of the agrarian business of the region according to agricultural receipts are determined. Conclusions – according to the results of the conducted research, the effectiveness of the mechanism of lending to the agricultural business of the regions according to agricultural receipts was proved, its advantages and disadvantages were noted, and attention was also focused. Proposed in Art. 7 of Law No. 5479-VI clearly delineate cases and restrictions on the debtor’s reimbursement of expenses incurred by the lender with the acquisition of the right to grow and harvest the pledged crop of agricultural products, which will ensure the principle of equality of parties on economic benefits and distribution of credit risks according to agricultural receipts.

World Bank Lending for Small Enterprises, 1989-1993

1996 ◽  
Author(s):  
Leila M. Webster ◽  
Randall Riopelle ◽  
Anne-Marie Chidzero
Keyword(s):  
World Bank ◽  
Bank Lending ◽  
Small Enterprises
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