Wow, the top of that post got botched big-time. Meant to say, I just saw something on your foray to EconLog back in 9/2009: http://econlog.econlib.org/archives/2009/09/i_deny_the_sign.html
I was led there by a recent post on Econbrowser: http://www.econbrowser.com/archives/2010/12/velocity_of_mon.html
Just saw something on your foray to EconLog back in September of 2009. (I was led there by a recent post at Econbrowser concerning MV=PY.) Anyway, I think I spotted a small error in your math in the comments. To wit:
At 10%, bank A is short reserves (needs $10.1, and it has $9) while bank B is long reserves (needs $10, has $11).
Overnight, bank B will lend bank A it's extra $1 in reserves, so bank B is back at its target, and bank A is now short just $0.1 instead of $1.1 as it was initially.
Bank A should be short only $1.00, no? Where'd the extra penny come from? With a reserve requirement of 10% and $100 in deposits, Bank A is still on the hook for only $10.00 in reserves, not $10.01.
Wow, the top of that post got botched big-time. Meant to say, I just saw something on your foray to EconLog back in 9/2009: http://econlog.econlib.org/archives/2009/09/i_deny_the_sign.html
ReplyDeleteI was led there by a recent post on Econbrowser: http://www.econbrowser.com/archives/2010/12/velocity_of_mon.html
Anyway, Happy New Year!
Just saw something on your foray to EconLog back in September of 2009. (I was led there by a recent post at Econbrowser concerning MV=PY.) Anyway, I think I spotted a small error in your math in the comments. To wit:
ReplyDeleteAt 10%, bank A is short reserves (needs $10.1, and it has $9) while bank B is long reserves (needs $10, has $11).
Overnight, bank B will lend bank A it's extra $1 in reserves, so bank B is back at its target, and bank A is now short just $0.1 instead of $1.1 as it was initially.
Bank A should be short only $1.00, no? Where'd the extra penny come from? With a reserve requirement of 10% and $100 in deposits, Bank A is still on the hook for only $10.00 in reserves, not $10.01.