A Dynamic Approach to Money Supply

Author(s): Yougui Wang, Guobin Zhou, Wanting Xiong

In this paper, we present the mechanism of money supply from a dynamic perspective, in which the behaviors of the sectors involved in the process of money creation and the interplay among them are taken into account. Specially, we introduce households’ withdrawals of deposit and firms’ repayments to loan, which are ignored in the conventional statement of money creation process. By deriving and analyzing the equilibrium solution to the dynamic equations which characterize the process, we can discuss the corresponding influence of each sector on the money supply.

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