Credit Creation and Fractional Reserve Constraint

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Adibnia, Ali | 2017

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Type of Document: M.Sc. Thesis
Language: Farsi
Document No: 49828 (44)
University: Sharif University of Technology
Department: Management and Economics
Advisor(s): Madanizadeh, Ali; Mahmoudzadeh, Amineh
Abstract:
In the banking and macro-financial literature، banks are modeled as financial intermediaries who give loans to the borrowers from their deposits. In these models، deposits are created from the accumulation of real goods. Besides this view، which is used more in the academic environment، others who are most practical، describe banks not intermediaries، but credit creator which do not need deposits to pay loans. In this research، we use credit creation concept in a Neoclassic environment that the central bank’s monetary policy is fractional reserve to answer this question that if banks could create credit for firms based on its future income، while firms have CIA constraints، how do economic variables treat. The results of this modeling show that consumption and production change based on the fractional reserve factor which the central bank sets. In other words، credit creation affects the welfare of the economy
Keywords:
Banking ; Credit Creation ; Fractional Reserve ; Money Creation ; Central Bank ; Cash in Advance (CIA)

No TOC