|
|
|
|
Author/Editor:
|
Benes, Jaromir ; Kumhof, Michael
|
|
|
|
|
|
Publication Date:
|
August 01, 2012
|
|
|
|
Electronic Access:
|
Free Full text
(PDF file size is 1,106KB).
Use the free
Adobe Acrobat Reader
to view this PDF file
|
|
|
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.
The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
|
|
|
|
|
Summary:
At the height of the Great Depression a number of leading U.S. economists advanced a
proposal for monetary reform that became known as the Chicago Plan. It envisaged the
separation of the monetary and credit functions of the banking system, by requiring 100%
reserve backing for deposits. Irving Fisher (1936) claimed the following advantages for this
plan: (1) Much better control of a major source of business cycle fluctuations, sudden
increases and contractions of bank credit and of the supply of bank-created money.
(2) Complete elimination of bank runs. (3) Dramatic reduction of the (net) public debt.
(4) Dramatic reduction of private debt, as money creation no longer requires simultaneous
debt creation. We study these claims by embedding a comprehensive and carefully calibrated
model of the banking system in a DSGE model of the U.S. economy. We find support for all
four of Fisher's claims. Furthermore, output gains approach 10 percent, and steady state
inflation can drop to zero without posing problems for the conduct of monetary policy.
|
|
|
|
Order a print copy
|
|
|
|
|
|
Series:
|
Working Paper No. 12/202
|
|
|
|
|
|
Subject(s):
|
Bank credit | Banking systems | Business cycles | Economic models | Monetary systems | Money supply
|
|
|
Author's Keyword(s):
|
Chicago Plan | Chicago School of Economics | 100% reserve banking | bank lending | lending risk | private money creation | bank capital adequacy | government debt | private debt | boom-bust cycles. |
|
|
|
|
|
|
|
|
