The Money Multiplier in Modern Financial Systems

Abstract

This paper considers the mechanisms of money supply creation: deposit, reserve and money multipliers. Having analysed the evolution of banking practices and monetary policy regimes we arrive at a conclusion that nowadays banks do not accumulate reserves in order to lend while the dynamics of cash in circulation has only but few macroeconomic implications. Therefore, the multipliers have become less informative. However, this does not challenge the need of the money and reserve demand estimation for monetary policy strategy and implementation.