OXFORD UNIVERSITY PRESS Burda Wyplosz Macroeconomics 3 rd

OXFORD UNIVERSITY PRESS Burda & Wyplosz Macroeconomics 3 rd edn Four kinds of three monies (December 2000) Table 8. 1

OXFORD UNIVERSITY PRESS Burda & Wyplosz Macroeconomics 3 rd edn Currency substitution* in Central/Eastern Europe (1993) *Ratio of foreign currency deposits to broad money Source: Sahay and Végh (1995) Table 8. 2

OXFORD UNIVERSITY PRESS Burda & Wyplosz Macroeconomics 3 rd edn Assets of some central banks, mid year 2000 (bn euros) Source: IMF Table 8. 3

OXFORD UNIVERSITY PRESS Burda & Wyplosz Macroeconomics 3 rd edn Elasticities of real money demand short run = adjustment within one quarter, long run=complete adjustment Table 8. 4

OXFORD UNIVERSITY PRESS Burda & Wyplosz Macroeconomics 3 rd edn Inflation and money growth in the long run (Rule of thumb*) *Assuming real money demand grows at 3% p. a. Table 8. 5

OXFORD UNIVERSITY PRESS Burda & Wyplosz Macroeconomics 3 rd edn Prices of IKEA mirrors across Europe, 1998 US$ Source: Haskel and Wolf (1999) Table 8. 6

OXFORD UNIVERSITY PRESS Burda & Wyplosz Macroeconomics 3 rd edn Cost of cash inventory (€): Table 8. 7

OXFORD UNIVERSITY PRESS Burda & Wyplosz Macroeconomics 3 rd edn

OXFORD UNIVERSITY PRESS Burda & Wyplosz Macroeconomics 3 rd edn Central Bank Assets Liabilities Foreign assets Reserves of commercial banks Loans to comm. banks Claims on governments Assets Deposits of government Commercial Banks Assets Liabilities Vault cash and reserves at Central Bank Liabilities to Central Bank Deposits of private sector Net worth Liabilities Bank notes held by nonbanks Net worth Loans and securities Consolidated Government and Nonbank Private Sector Where’s M 1? Deposits of private sector Government and private debt Deposits of government Real assets, incl. net worth of banking sector Net worth Figure 8. 1

OXFORD UNIVERSITY PRESS Burda & Wyplosz Macroeconomics 3 rd edn Narrow and wide monetary aggregates, France (% of GDP) Figure 8. 2 (a)

OXFORD UNIVERSITY PRESS Burda & Wyplosz Macroeconomics 3 rd edn Narrow and wide monetary aggregates, Germany (% of GDP) Figure 8. 2 (b)

OXFORD UNIVERSITY PRESS Burda & Wyplosz Macroeconomics 3 rd edn Narrow and wide monetary aggregates, UK (% of GDP) Figure 8. 2 (c)

OXFORD UNIVERSITY PRESS Burda & Wyplosz Macroeconomics 3 rd edn Narrow and wide monetary aggregates, USA (% of GDP) Figure 8. 2 (d)

OXFORD UNIVERSITY PRESS Burda & Wyplosz Macroeconomics 3 rd edn Money demand prices (assuming no real GDP growth) M/P M/P M P M P DP/P>0 DP/P=0 0 Time (a) Zero inflation 0 0 Time (b) Constant inflation Time (c) Rising inflation Figure 8. 3

OXFORD Burda & Wyplosz Macroeconomics 3 rd edn UNIVERSITY PRESS Nominal interest rate Equilibrium in the money market 0 Real money stock Figure 8. 4

OXFORD Burda & Wyplosz Macroeconomics 3 rd edn UNIVERSITY PRESS Nominal interest rate Expansionary monetary policy A A´ 0 Real money stock Figure 8. 5

OXFORD Burda & Wyplosz Macroeconomics 3 rd edn UNIVERSITY PRESS Nominal interest rate Increase in real economic activity A´ A 0 Real money stock Figure 8. 6

OXFORD Burda & Wyplosz Macroeconomics 3 rd edn UNIVERSITY PRESS Nominal interest rate Decline in transaction costs A A´ 0 Real money stock Figure 8. 7

OXFORD Burda & Wyplosz Macroeconomics 3 rd edn UNIVERSITY PRESS Nominal interest rate Money market disequilibrium B A 0 A´ C C´ Real money stock Figure 8. 8

OXFORD UNIVERSITY PRESS Burda & Wyplosz Macroeconomics 3 rd edn Money, inflation and the nominal exchange rate in the long run: OECD countries, 1970 to present Figure 8. 9

OXFORD Burda & Wyplosz Macroeconomics 3 rd edn UNIVERSITY PRESS Nominal interest rate Money and long-run growth A´ A 0 B Real money stock Figure 8. 10

OXFORD UNIVERSITY PRESS Burda & Wyplosz Macroeconomics 3 rd edn Nominal interest rates, UK and the Netherlands Figure 8. 11

OXFORD UNIVERSITY PRESS Burda & Wyplosz Macroeconomics 3 rd edn Money demand hyperinflation in Russia 1992 1993 1994 1995 1996 Figure 8. 12

OXFORD UNIVERSITY PRESS Burda & Wyplosz Macroeconomics 3 rd edn one trip t=0 t=1 two trips t=0 Trips to the bank and average money holdings t=1 three trips t=0 t=1 four trips t=0 t=1 Figure 8. 13