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Czech national bank's influence on the quantity of money in the economy
[Vliv české národní banky na množství peněz v ekonomice]

Author

Listed:
  • Zbyněk Revenda
Abstract
The latest financial crisis, among other consequences, has led to significant reductions in bank lending. Because cashless bank loans granted to non-bank clients are the dominant way of issue of money into the economy, reducing of them influenced also deflationary pressures. Central banks have tried to respond by expansionary monetary policy in the form of purchases of debt securities from banks and interest rate cuts. However, without any significant effect. Banks did not use a higher quantity of money in the banking system to order to increase granting of loans into the economy. We could observe the similar problems in the Czech Republic. Analysis of data between late 2008 - mid-2014 reliably confirms the weak impact of the Czech National Bank on the development of credit and the quantity of money in the economy. We analyzed data on currency, bank reserves, the monetary base, the monetary aggregates, deposits and loans. Separate analysis concerned the money multipliers and the credit multiplier. The banking system in the Czech Republic is also very specific in the existence of large excess bank reserves. The policy of lowering interest rates by the central bank had not the desired effect, so the only possibility was depreciation of the domestic currency. Another enormous increase in bank reserves as a direct result of unsterilized foreign exchange intervention again did not lead to a significant growth in loans and the quantity of money in the economy. Pressures against deflation can therefore be expected only from the reaction of households and firms to weaker domestic currency.

Suggested Citation

  • Zbyněk Revenda, 2014. "Czech national bank's influence on the quantity of money in the economy [Vliv české národní banky na množství peněz v ekonomice]," Acta Oeconomica Pragensia, Prague University of Economics and Business, vol. 2014(5), pages 3-17.
    • Handle: RePEc:prg:jnlaop:v:2014:y:2014:i:5:id:449:p:3-17
    DOI: 10.18267/j.aop.449
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    References listed on IDEAS

    as
    1. Robert H. Rasche & Marcela M. Williams, 2007. "The effectiveness of monetary policy," Review, Federal Reserve Bank of St. Louis, vol. 89(Sep), pages 447-490.
    2. Zbyněk Revenda, 2009. "Monopoly centrálních bank a emise peněz [Central Bank Monopolies and Money Issuance]," Politická ekonomie, Prague University of Economics and Business, vol. 2009(5), pages 579-600.
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    More about this item

    Keywords

    capital; central bank; credit; deposit; monetary policy; multiplier; regulation;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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