Banks are Not Intermediaries of Loanable Funds And Why this Matters

Jakab, Zoltán; Kumhof, Michael

doi:10.2139/ssrn.2612050

Cited by 174 publications

(138 citation statements)

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“…6 Irrespective of which proxy is used, nificantly reduce lending to the private non-financial sector provided by domestic banks 3 This understanding of banking has been recently revived mainly by economists associated with the Bank for International Settlements and the Bank of England (see, for example, Disyatat, 2010, 2011;Disyatat, 2011;McLeay, Radia, and Thomas, 2014;Jakab and Kumhof, 2015). See Moore (1988) for an earlier treatment.…”

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confidence: 99%

Asymmetric Credit Growth and Current Account Imbalances in the Euro Area

Unger

2015

SSRN Journal

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Asymmetric Credit Growth and Current Account Imbalances in the Euro Area

Unger

2015

SSRN Journal

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“…Issues of the money multiplier concept and its effect on interest rates were addressed in researches by U. Bindseil [6,7], Z. Jakab and M. Kumhof [8]. R. Werner providing empirical evidence of the noncash money creation in the process of lending transactions and without reference to the money base [9,10].…”

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Modern Interest Rate Policy and the Phenomenon of Negative Interest Rates

Бурлачков¹

2017

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Importance The target interest rate is the main tool of the interest rate policy. Deflationary trends in leading economies undermined interest rates of central banks. It resulted in the phenomenon of negative interest rates on commercial banks' deposits. Objectives The research focuses on the specifics of the modern interest rate policy of central banks in leading economies. I also identify what caused negative interest rates and outline a methodological framework for the interest rate policy in the Russian economy. Methods The research is based on methods of logic and statistical analysis. Results I unveil distinctions of central banks' interest rate policies, while the monetary mechanism of the modern economy evolves. I unfold the specifics of regulating interest rates with interest rate corridors. The article highlights distinctions in setting interest rates and the way they influence lending and liquidity. I also underpin the nexus between the formation of interest rates and leverage level of the economy. Interest rates were found to impact deflationary trends. Conclusions and RelevanceThe specifics of the modern interest rate policies of central banks depends on the way the monetary mechanism evolves, i.e. the mechanism of the money supply. As central banks implemented payment systems, cash in correspondent accounts of commercial banks with central banks grew even more important. However, in targeting the rate on these reserves, central banks are constrained to influence interest rates on commercial bank's loans. That is why central banks are unable to effectively stimulate a growth in bank lending during the cyclical recession and have to apply an unconventional method to increase the money supply. © Publishing house FINANCE and CREDIT, 2016The editor-in-charge of this article was Irina M. Vechkanova Authorized translation by Irina M. Vechkanova Currently †

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“…The …rst part of this prediction is empirically con…rmed by Gorton (1999) who studies the pricing of banknotes during the U.S. Free Banking Era. 17 The applicability of the baseline model to the modern banking is more limited. A fundamental assumption of the model, namely that banks face no constraints in making loans, is probably far from reality nowadays.…”

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Banks' Wealth, Banks Creation of Money, and Central Banking

Wang

2017

SSRN Journal

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Banks are Not Intermediaries of Loanable Funds And Why this Matters

Cited by 174 publications

References 63 publications

Asymmetric Credit Growth and Current Account Imbalances in the Euro Area

Asymmetric Credit Growth and Current Account Imbalances in the Euro Area

Modern Interest Rate Policy and the Phenomenon of Negative Interest Rates

Banks' Wealth, Banks Creation of Money, and Central Banking

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