Macroeconomic Modeling of Money, Credit, and Banking

Abstract

A supply-and-demand model of deregulated financial markets is compared to deposit-multiplier models, interest-rate reduced forms, the textbook IS-LM model, and a credit-market approach. This model is used to analyze a variety of financial events that simpler models find paradoxical: some events stimulate the economy while contracting M1; open market purchases need not be multiplied by the banking system to be powerful; business-cycle fluctuationg in tax revenue can have strong effects on financial markets; and increased financial intermediation can be contractionary.Credit; M1; Macroeconomics; Money; Multiplier; Supply