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Neil May - One of the best experts on this subject based on the ideXlab platform.
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Housing supply, investment demand and Money Creation: A comment on the drivers of London’s housing crisis
Urban Studies, 2017Co-Authors: Nick Gallent, Dan Durrant, Neil MayAbstract:This commentary examines the current emphasis on supply-side solutions to the housing crisis in England – building more homes to increase accessibility – against a backdrop of intensifying demand-side pressures, the financialisation of housing, and the impact of credit liberalisation and Money Creation on housing demand and prices. It reflects on the need to balance additional housing supply, where needed, with gradual ‘demand management’ responses that at last acknowledge the centrality of spatially unbounded investment demand and the flow of Money created by deregulated banks into housing as fundamental to the current crisis of housing affordability and access.
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housing supply investment demand and Money Creation a comment on the drivers of london s housing crisis
Urban Studies, 2017Co-Authors: Nick Gallent, Dan Durrant, Neil MayAbstract:This commentary examines the current emphasis on supply-side solutions to the housing crisis in England – building more homes to increase accessibility – against a backdrop of intensifying demand-side pressures, the financialisation of housing, and the impact of credit liberalisation and Money Creation on housing demand and prices. It reflects on the need to balance additional housing supply, where needed, with gradual ‘demand management’ responses that at last acknowledge the centrality of spatially unbounded investment demand and the flow of Money created by deregulated banks into housing as fundamental to the current crisis of housing affordability and access.
Nick Gallent - One of the best experts on this subject based on the ideXlab platform.
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Housing supply, investment demand and Money Creation: A comment on the drivers of London’s housing crisis
Urban Studies, 2017Co-Authors: Nick Gallent, Dan Durrant, Neil MayAbstract:This commentary examines the current emphasis on supply-side solutions to the housing crisis in England – building more homes to increase accessibility – against a backdrop of intensifying demand-side pressures, the financialisation of housing, and the impact of credit liberalisation and Money Creation on housing demand and prices. It reflects on the need to balance additional housing supply, where needed, with gradual ‘demand management’ responses that at last acknowledge the centrality of spatially unbounded investment demand and the flow of Money created by deregulated banks into housing as fundamental to the current crisis of housing affordability and access.
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housing supply investment demand and Money Creation a comment on the drivers of london s housing crisis
Urban Studies, 2017Co-Authors: Nick Gallent, Dan Durrant, Neil MayAbstract:This commentary examines the current emphasis on supply-side solutions to the housing crisis in England – building more homes to increase accessibility – against a backdrop of intensifying demand-side pressures, the financialisation of housing, and the impact of credit liberalisation and Money Creation on housing demand and prices. It reflects on the need to balance additional housing supply, where needed, with gradual ‘demand management’ responses that at last acknowledge the centrality of spatially unbounded investment demand and the flow of Money created by deregulated banks into housing as fundamental to the current crisis of housing affordability and access.
Alexander Pierre Faure - One of the best experts on this subject based on the ideXlab platform.
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Money Creation: Misconceptions: Government Spending Creates Money
SSRN Electronic Journal, 2013Co-Authors: Alexander Pierre FaureAbstract:It is sometimes stated that government spending leads to Money Creation, at the same time providing the banks with excess reserves, leading to further Money Creation. This is so, but the statement ignores the fact that the Money stock (and reserves) was depleted when revenue was raised in order for the expenditure by government to take place. It is irrelevant that the monetary base is added to because Money Creation does not revolve around it. However, when government borrows by the issue of new government securities (bonds and Treasury bills) new Money (bank deposits) is created to the extent that the government securities are taken up by the banks, and the funds borrowed are spent by government.
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Money Creation: Genesis 1: Before the Goldsmith-Bankers
SSRN Electronic Journal, 2013Co-Authors: Alexander Pierre FaureAbstract:It is a well-establish opinion that Money Creation has its genesis in the loan activities of the goldsmith-bankers in seventeenth-century London. This is accurate for bank note Money, which had its origin in the receipts for precious metal deposits issued by the goldsmith-bankers. However, Money Creation began in the age before this historic innovation of the goldsmith-bankers.
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Money Creation: Death of the Money Multiplier
SSRN Electronic Journal, 2013Co-Authors: Alexander Pierre FaureAbstract:It persists in part of the literature that there are two monetary policy models: the monetary base-focused model (aka the Money multiplier model/strict Money-rule model) and the interest rate-focused model. The former only exists in theory because its implementation (for brief periods in a few countries) had severe consequences in terms of interest rate volatility (a major input in business decision-making). The interest rate-focused model relies on interest rates, which are under the control of the central bank, being the restraining factor in the demand for bank loans which, when satisfied by the banks, leads to simultaneous deposit (Money) Creation. It is still alleged by some that the two models differ in terms of how Money is created. This is not so, as Money Creation is the outcome of net new bank lending in both (only endogenous Money Creation exists). The difference between the two models is that the one is applied while the other is not. It is time to say goodbye to the Money multiplier.
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Money Creation: Genesis 2: Goldsmith-Bankers and Bank Notes
SSRN Electronic Journal, 2013Co-Authors: Alexander Pierre FaureAbstract:Money Creation began before the loan activities of the goldsmith-bankers in seventeenth-century London, in the form of coin clipping, coin debasement, and so on. However, Money Creation as we know it today (new bank loans create new bank deposits, which is the dominant means of payments) began when the deposit receipts of goldsmith-bankers became accepted by the general public as the means of payments. Almost simultaneously the goldsmith-bankers made a discovery that changed the world: that they could make loans by the writing out of new receipts (i.e. the means of payments, Money). The receipts later became bank notes, and control of this monetary system was the self-imposed minimum of precious metal holdings to total bank notes.
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Money Creation: The Sources 2: Relationship between Credit and Money
SSRN Electronic Journal, 2013Co-Authors: Alexander Pierre FaureAbstract:Despite stout efforts by some scholars to demonstrate the logical and direct relationship between bank domestic credit extension (DCE) and M3 growth (because Money Creation is the outcome of new DCE), there remains, in much of the literature, a disconnection between these two aggregates. The endogeneity of Money Creation is not a hypothesis; it is a fact, and one that has existed since a goldsmith-banker wrote out the first receipt (bank note) and handed it to a borrower, as opposed to a depositor of gold coins. This paper clarifies this monetary issue and provides substantiation. It also demonstrates the direct link between DCE growth and nominal GDP growth in the long term.
Yougui Wang - One of the best experts on this subject based on the ideXlab platform.
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Money Creation within the macroeconomy: An integrated model of banking
International Review of Financial Analysis, 2020Co-Authors: Yougui WangAbstract:Abstract We develop a stock-flow consistent model to describe a macroeconomic system consisting of households, firms, the government, the central bank, and banks. The framework is based on the balance sheets of all sectors, in which the monetary flows between them govern the dynamics of the items. The whole system evolves over time and eventually attains a stationary state. Using this integrated model, we find that all flows from banks, including issuing loans, purchasing bonds, paying dividends, and paying interest on deposits, create Money. On the contrary, all flows going to banks, including receiving repayments, selling bonds, issuing equities, and receiving interest on loans and bonds, lead to Money destruction. These flows associated with the behaviors of Money Creation and destruction are the core factors that determine stationary states. We show the relationships between these flows and the stationary stock variables, especially the quantity of Money. We also present the dependence of final output on these flows. We analyze the effects of monetary policies, such as changing the rate on loans and the amount of bank reserves. We find that an increase in the rate may yield higher output, while injecting more reserves may result in lower output.
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The impact of Basel III on Money Creation: a synthetic theoretical analysis
Economics: The Open-Access Open-Assessment E-Journal, 2018Co-Authors: Wanting Xiong, Yougui WangAbstract:Inspired by the extensive criticisms against the textbook fractional reserve theory, this paper revisits the mechanics of Money Creation process and complements the traditional focus on the reserve requirement by elaborating on the roles of three prudential regulations proposed in the Basel III accord. In particular, the authors consider such conditions where the financial markets are imperfect and suffer from various frictions that the commercial bank cannot readily modulate their liquidity and capital buffers, especially at an aggregate level or within a short period. Meanwhile, as a result of maturity mismatch and fundamental uncertainty, the credit and Money Creation activities inevitably add to the liquidity and insolvency risks faced by the bank. Under the assumptions that the levels of bank reserves, capital and government bonds are exogenously given, and that the concerned prudential regulations are always binding, the authors examine the determinants of the broad Money aggregate and the Money multiplier. Specifically, they find that 1) the Money multiplier under Basel III is not constant but a decreasing function of the monetary base; 2) the determinants of the bank's Money Creation capacity are regulation specific; 3) when multiple regulations are imposed simultaneously, the effective binding regulation and the corresponding Money multiplier will vary across different economic states and bank balance sheet conditions.
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Money Creation and circulation in a credit economy
Physica A: Statistical Mechanics and its Applications, 2017Co-Authors: Wanting Xiong, Yougui WangAbstract:Abstract This paper presents a multi-agent model describing the main mechanisms of Money Creation and Money circulation in a credit economy. Our special attention is paid to the role of debt in the two processes. With the agent-based modeling approach, macro phenomena are well founded in micro-based causalities. A hypothetical economy composed of a banking system and multiple traders is proposed. Instead of being a pure financial intermediary, the banking system is viewed as the center of Money Creation and an accelerator of Money circulation. Agents finance their expenditures not only by their own savings but also through bank loans. Through mathematical calculations and numerical simulation, we identify the determinants of Money multiplier and those of velocity of Money. In contrast to the traditional Money Creation model, the Money multiplier is determined not only by the behavior of borrowing but also by the behavior of repayment as well. The velocity of Money is found to be influenced by both Money-related factors such as the expenditure habits of agents with respect to their income and wealth and debt-related factors such as borrowing and repayment behaviors of debtors and the reserve requirements faced by banks.
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The impact of Basel III on Money Creation: A synthetic analysis
2017Co-Authors: Wanting Xiong, Yougui WangAbstract:Recent evidences provoke broad rethinking of the role of banks in Money Creation. The authors argue that apart from the reserve requirement, prudential regulations also play important roles in constraining the Money supply. Specifically, they study three Basel III regulations and theoretically analyze their standalone and collective impacts. The authors find that 1) the Money multiplier under Basel III is not constant but a decreasing function of the monetary base; 2) the determinants of the bank's Money Creation capacity are regulation-specific; 3) the effective binding regulation and the corresponding Money multiplier vary across different economic states and bank balance sheet conditions.
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The impact of the liquidity coverage ratio on Money Creation: A stock-flow based dynamic approach
Economic Modelling, 2017Co-Authors: Wanting Xiong, Liujun Chen, Yougui WangAbstract:Abstract This paper examines Money Creation process of the banking system when it is complying with the Liquidity Coverage Ratio (LCR). A stock-flow based dynamic model of credit Creation process is developed in which the commercial bank supplies loans to the firm. The change of credit is governed by the bank lending and the repayment of the existing loans, where the equilibrium stock of credit could be attained once the lending is exactly equal to the repayment. However, the supply of bank loans is restricted by both the reserve requirement set by the central bank and the LCR prescribed by the banking authority; and, as a result, Money Creation must be affected by all these regulations. The bank loan supply under the constraint of the required liquidity buffer might have different prescriptions under different economic scenarios, and would eventually result in an equilibrium monetary stock correspondingly. The final formula of Money multiplier is derived respectively as the rational response of the bank to the corresponding regulation. When the reserve requirement is tighter than the LCR, the Money multiplier has the same expression of that in the prevailing fractional reserve regime. Yet when the situation departs from this regime, the determinants of the Money multiplier are found to be associated with the parameters that characterize the behavior of banks subject to the regulation and of the private sector rather than those monetary structural factors. It is noteworthy that there may be a credit contraction and even a significant reduction in Money multiplier when the bank is regulated by the LCR. This novel perspective on credit Creation of the banking system also offers us an insightful understanding on the impacts of banking regulations on the stability of the banking system and suggests a new guide tool for designing them.
Neil Wallace - One of the best experts on this subject based on the ideXlab platform.
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Optimal Money Creation in “pure currency” economies: a conjecture
The Quarterly Journal of Economics, 2013Co-Authors: Neil WallaceAbstract:In a pure-currency economy, Money is the only durable object and people have private histories. In such economies, taxation is not feasible and in some of them trade is enhanced through the use of Money. For economies of that kind in which a nondegenerate distribution of Money, part of the state of the economy, affects trades and real outcomes, and in which trades affect the state at the next date, the conjecture is that there are transfer schemes financed by Money Creation that improve ex ante representative-agent welfare relative to what can be achieved holding the stock of Money fixed. JEL Codes: E52, E58. Copyright 2014, Oxford University Press.
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Another Example in which Lump-sum Money Creation is Beneficial
Advances in Macroeconomics, 2001Co-Authors: Alexei Deviatov, Neil WallaceAbstract:A probabilistic version of lump-sum Money Creation is studied in a random matching model with indivisible Money and individual holdings bounded at 2 units. Sufficient conditions are obtained for an ex ante optimum from among implementable steady states to involve lump-sum Creation of Money. The role of that Creation is to change the distribution of Money holdings to permit more trade to occur. Beneficial Money Creation is impossible in a version with a 1 unit upper bound on individual holdings, but can almost certainly happen for all higher bounds.