Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
Maybe it's that the standard theory is bunk

There's no "maybe" about that. The "money multiplier" (which is simply the inverse of the reserve requirement) is a completely ex post construct which offers no constraint on private bank lending.

As long as the central bank is targeting an overnight interbank rate via open market operations, reserve requirements (if remunerated at the policy rate) can be set to as high a number as the fraction of (current reserves + acceptable paper for open market operations) to total insured deposits on the private banks' balance sheet. Beyond this point it would lose the ability to conduct open market operations, because the central bank would run out of valid paper to buy, but that is the only reason you can't set reserve requirements to ten million per cent if you wanted to.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed May 11th, 2011 at 03:07:09 AM EST
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