How to order
IMF Publications

Working Papers in full text
2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 All


Other research-related activities and publications of the IMF can be found at IMF Research

Free Email Notification

Receive emails when we post new items of interest to you.

Subscribe or Modify your profile



The Chicago Plan Revisited

Author/Editor: Benes, Jaromir | Kumhof, Michael
Authorized for Distribution: August 1, 2012
Electronic Access: Free Full Text (PDF file size is 1,138KB)
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.
 
English  
    Published:   August 1, 2012        
            Format:   Paper
    Stock No:   WPIEA2012202   Pages:   70
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
Please address any questions about this title to publications@imf.org.