But I suspect that the effects on the money supply of the monetary multiplier depends on market psychology

There is no money multiplier. There is only interest rate, margin requirement and the volume of creditworthy customers. Those are the operational constraints - the "money multiplier" is an ex post accounting construct that only appears to be stable because financial regulators impose a stable liquidity requirement. In the zero lower bound to the interest rate, the "money multiplier" looks like it drops, because liquidity requirements cease to have meaning when liquidity is free. The second you raise interest rates materially above zero, the "money multiplier" will, in an open market operation regime, go back to being the inverse of the liquidity requirement, because the central bank is forced to drain all reserves that are surplus to requirement via open market operations before the interbank rate goes up.

Alternatively, the central bank can obtain precisely the same effect by remunerating excess reserves at the policy rate, but this will lead to much pundit bullshitting about "inflation just around the corner" due to "excess reserves just waiting to be lent out." And since modern central bankers seem to pay more attention to pundits' inflationary expectations than to the state of the real economy, they'd likely chicken out and go back to open market operations, despite this being a materially worse option in terms of performing useful macroeconomic planning.

- Jake

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