burda & wyplosz macroeconomics 3 rd edn oxford university press four kinds of three monies...

Burda & Wyplosz Macroeconomics 3rd ednOXFORDUNIVERSITY PRESS

Currency M1 M2 M3

UK (£bn) 27.1 459.8 804.5 926.1 % GDP 3.0 47.9 85.0 96.7

Euro-zone (€ bn) 347.5 2074.3 4287.2 5080.0 % GDP 1.2 15.8 25.5 35.3

USA ($ bn) 530.5 1091.3 4945.7 7098.8 % GDP 2.9 11.0 50.0 71.7

Four kinds of three monies(December 2000)

Table 8.1


Table 8.2

Currency substitution* in Central/Eastern Europe(1993)

Source: Sahay and Végh (1995)

Albania 18 Poland 28Bulgaria 30 Romania 35Estonia 5 Russia 35Latvia 25 Slovenia 42Lithuania 25 Ukraine 28

*Ratio of foreign currency deposits to broad money


Assets of some central banks, mid year 2000 (bn euros)

Table 8.3

Gold Foreign Loans to Claims onassets commercial banks gov't.

Euroland 117.3 341.8 477.3 112.8 USA 11.8 61.0 - 561.3 UK 4.8 30.3 - 22.7

Japan 1.2 268.9 39.9 487.9 Sweden 0.3 17.5 4.8 2.5 Poland 1.0 27.0 1.7 4.7

Source: IMF


Table 8.4

Short run Long run Short run Long run

Belgium 0.06 0.41 -0.50 -3.57 Denmark 0.27 1.67 -0.30 -1.88 Finland 0.64 1.13 -0.77 -1.57 France 0.10 0.36 -0.19 -0.70

Germany 0.35 1.19 -0.53 -1.83 Greece 0.16 1.25 -0.13 -1.00 Ireland 0.07 1.48 -0.45 -9.00 Italy 0.11 1.88 -0.31 -5.17

Netherlands 0.41 0.71 -0.86 -1.51 Norway 0.09 1.74 -0.23 -4.60 Portugal 0.18 0.95 -0.51 -2.68 Sweden 0.49 1.40

Switzerland 0.04 0.36 -0.79 -7.18 UK 0.12 1.70 -0.43 -6.14 Japan 0.05 1.76 -0.44 -6.29 USA 0.06 1.18 -0.12 -2.40

Unweighted avg. 1.20 -3.70

Real income Nominal interest rate

Elasticities of real money

demand

short run = adjustment within one quarter, long run=complete adjustment


Table 8.5

Inflation and money growth in the long run(Rule of thumb*)

*Assuming real money demand grows at 3% p.a.

Nominal money supply (%)

Inflation rate(%)

0 -3 3 0 8 5

50 47 103 100


Mirror Types

Alg Guldros Krabb(square mirror tiles) (round mirror) (wavy mirror)

Austria 24 113 48Belgium 22 111 28Denmark 13 119 34Finland 15 107 21

France 21 100 33Germany 22 97 51Italy 23 79 44Netherlands 20 101 20

Norway 12 82 27Spain 32 112 34Sweden 15 94 24Switzerland 19 67 27

United Kingdom 25 115 30

Prices of IKEA mirrors across Europe, 1998 US$

Table 8.6Source: Haskel and Wolf (1999)


Table 8.7

Cost of cash inventory (€):

2000

1% 1

PYTC= i +cn2n

€€

Number of Interest cost Trip's cost Total costtrips = n (PY /2n )i (cn )

1 10.00 1.00 11.00 2 5.00 2.00 7.00 3 3.33 3.00 6.33 4 2.50 4.00 6.50 5 2.00 5.00 7.00 6 1.67 6.00 7.67


2000

1% 1

PYTC= i +cn2n

€€


Figure 8.1

Foreign assets

Loans to comm. banks

Claims on governments

Reserves of commercial

banks

Bank notes held by nonbanks

Deposits of government

Net worth Deposits of

private sector

Deposits of government

Real assets, incl. net worth of

banking sector

Government and private debt

Net worth

Vault cash and reserves at

Central Bank

Loans and securities

Liabilities to Central Bank

Deposits of private sector

Net worth

Bank notes held by nonbanks

Central BankConsolidated Government

and Nonbank Private Sector

Commercial Banks

Assets Liabilities

Assets Liabilities

Assets Liabilities

Where’sM1?


Figure 8.2 (a)

Narrow and wide monetary aggregates, France(% of GDP)


Figure 8.2 (b)

Narrow and wide monetary aggregates, Germany(% of GDP)


Figure 8.2 (c)

Narrow and wide monetary aggregates, UK(% of GDP)


Figure 8.2 (d)

Narrow and wide monetary aggregates, USA(% of GDP)


Figure 8.3

Money demand and prices(assuming no real GDP growth)

Time Time Time

(a) Zero inflation (b) Constant inflation (c) Rising inflation

P/P=0P/P>0

P/PP

PP

M

M M

M/P M/PM/P

0 0 0


Figure 8.4

Equilibrium in the money market

Real money stock

Nom

inal

inte

rest

rat

e

0

L Y,i,cDemand: ( )

i

Supply


Figure 8.5

Expansionary monetary policy

Real money stock

Nom

inal

inte

rest

rat

e

0

Supply

L Y,i,cDemand: ( )

iA

A´i


Figure 8.6

Increase in real economic activity

Real money stock

Nom

inal

inte

rest

rat

e

0

Supply

L Y,i,cDemand: ( )

iA

A´i


Figure 8.7

Decline in transaction costs

Real money stock

Nom

inal

inte

rest

rat

e

0

Supply

Demand

iA

A´i


Figure 8.8

Money market disequilibrium

Real money stock

Nom

inal

inte

rest

rat

e

0

Supply

Demandi A A´

i B

C C´


NLCDNA

CH

GRP

EI

IRL

AUSN

SFN

NZLB

FR

USADJ

DEN

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0% 5% 10% 15% 20%

M1 growth rate

CPI inflation

-8%

-6%

-4%

-2%

0%

2%

4%

6%

-10% -5% 0% 5%

Inflation differential

Exchange rate

depreciation

GR

P

E

I

UK

IRLAUS

SFNNFR

DEN

CDNNZL

B

NL

AD

CHJ

Money, inflation and the nominal exchange rate in the long run: OECD countries, 1970 to present

Figure 8.9


Figure 8.10

Money and long-run growth

Real money stock

Nom

inal

inte

rest

rat

e

0

Supply

Demand

A

A´

B


UnitedKingdom

Netherlands

0

2

4

6

8

10

12

14

16

1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990

Nominal interest rates, UK and the Netherlands

Figure 8.11


2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

Rea

l m

on

ey s

up

ply

0

500

1000

1500

2000

2500

Infl

atio

n (

ann

ual

rat

e)

Real Money Stock(left scale)

Monthly Inflation(right scale)

1992 1993 1994 1995 1996

Money demand and hyperinflation in Russia

Figure 8.12


Figure 8.13

Trips to the bank andaverage money

holdings

t=1t=0

t=1t=0

t=1t=0

t=1t=0

one trip

two trips

three trips

four trips

PY2

PY3

PY4

PY

PY 2

PY2

2

PY2

3

PY2

4

burda & wyplosz macroeconomics 3 rd edn oxford university press four kinds of three monies...

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