The Economics of Target Balances by Hans-Werner Sinn

Author:Hans-Werner Sinn
Language: eng
Format: epub
ISBN: 9783030501709
Publisher: Springer International Publishing

(9.8)

while the remainder, 1 − γi, denotes the proportion flowing into term deposits or being used to repay money creation credit, the respective sub-proportions being λi and 1 − λi, 0 ≤ λi ≤ 1:

(9.9)

Finally, let μi, 0 ≤ μi ≤ 1, be the proportion of the increase in the monetary base that is flowing into minimum reserves, while 1 − μi is the proportion accumulated as excess liquidity:

(9.10)

Figure 9.2 summarizes these assumptions and assists in remembering how the coefficients are defined. Note that the assumptions made imply that the liquidity inflow as measured by d(T + S) must go somewhere. Thus, when the policy interest rates are positive, there is no possibility for the incremental Target and cash balances not to change NCB i’s primary seignorage income subject to pooling.

Fig. 9.2The marginal structure of sinks (and sources) of international liquidity flows as measured by the Target and cash balances. (Note: This graph is to be understood algebraically, that is the coefficients would also apply to the case of a liquidity outflow where M, U, L and −A are sources rather than sinks of liquidity)

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