Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/146979
Authors: 
Lainà, Patrizio
Year of Publication: 
2015
Series/Report no.: 
Working Paper, Levy Economics Institute 851
Abstract: 
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.
Subjects: 
Full-reserve Banking
Stock-flow Consistency
Money Creation
Banking System
JEL: 
E27
E42
E51
Document Type: 
Working Paper

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