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Sure, there are limits. But fundamentally, holding all else constant, increasing bank reserves decreases the cost of lending, which increases the quantity of le
by darawk 6y ago
Sure, there are limits. But fundamentally, holding all else constant, increasing bank reserves decreases the cost of lending, which increases the quantity of lending, which increases the money supply.
- RobertoG 6y agoNot when the interest rate is 0% From then on, any increase in reserves doesn't make borrowing more attractive.
- darawk 6y agoWhen it is actually 0%, yes. But it is currently not 0%.
- neilwilson 6y ago"increasing bank reserves decreases the cost of lending" Only if there is a net margin between what the central bank pays on reserves and what the bank has to pay out on the matching deposits. Once central bank renumeration gets low, the cost of unsecured deposits matches or exceeds the central bank remuneration because of the draw to cash.