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OXFORD
Burda & Wyplosz Macroeconomics 3rd edn
UNIVERSITY PRESS
Four kinds of three monies
(December 2000)
Currency
M1
M2
M3
UK
(£bn)
% GDP
27.1
3.0
459.8
47.9
804.5
85.0
926.1
96.7
Euro-zone
(€ bn)
% GDP
347.5
1.2
2074.3
15.8
4287.2
25.5
5080.0
35.3
USA
($ bn)
% GDP
530.5
2.9
1091.3
11.0
4945.7
50.0
7098.8
71.7
Table 8.1
OXFORD
Burda & Wyplosz Macroeconomics 3rd edn
UNIVERSITY PRESS
Currency substitution* in Central/Eastern Europe
(1993)
Albania
Bulgaria
Estonia
Latvia
Lithuania
18
30
5
25
25
Poland
Romania
Russia
Slovenia
Ukraine
28
35
35
42
28
*Ratio of foreign currency deposits to broad money
Source: Sahay and Végh (1995)
Table 8.2
OXFORD
Burda & Wyplosz Macroeconomics 3rd edn
UNIVERSITY PRESS
Assets of some central banks, mid year 2000
(bn euros)
Euroland
USA
UK
Japan
Sweden
Poland
Source: IMF
Gold
Foreign
assets
Loans to
commercial banks
Claims on
gov't.
117.3
11.8
4.8
341.8
61.0
30.3
477.3
-
112.8
561.3
22.7
1.2
0.3
1.0
268.9
17.5
27.0
39.9
4.8
1.7
487.9
2.5
4.7
Table 8.3
OXFORD
Burda & Wyplosz Macroeconomics 3rd edn
UNIVERSITY PRESS
Real income
Short run
Long run
Nominal interest rate
Short run
Long run
Belgium
Denmark
Finland
France
0.06
0.27
0.64
0.10
0.41
1.67
1.13
0.36
-0.50
-0.30
-0.77
-0.19
-3.57
-1.88
-1.57
-0.70
Germany
Greece
Ireland
Italy
0.35
0.16
0.07
0.11
1.19
1.25
1.48
1.88
-0.53
-0.13
-0.45
-0.31
-1.83
-1.00
-9.00
-5.17
Netherlands
Norway
Portugal
Sweden
0.41
0.09
0.18
0.49
0.71
1.74
0.95
1.40
-0.86
-0.23
-0.51
-1.51
-4.60
-2.68
Switzerland
UK
Japan
USA
0.04
0.12
0.05
0.06
0.36
1.70
1.76
1.18
-0.79
-0.43
-0.44
-0.12
-7.18
-6.14
-6.29
-2.40
Unweighted avg.
1.20
Elasticities
of real
money
demand
-3.70
short run = adjustment within one quarter, long run=complete adjustment
Table 8.4
OXFORD
Burda & Wyplosz Macroeconomics 3rd edn
UNIVERSITY PRESS
Inflation and money growth in the long run
(Rule of thumb*)
Nominal money supply
(%)
Inflation rate
(%)
0
3
8
50
103
-3
0
5
47
100
*Assuming real money demand grows at 3% p.a.
Table 8.5
OXFORD
Burda & Wyplosz Macroeconomics 3rd edn
UNIVERSITY PRESS
Prices of IKEA mirrors across Europe, 1998 US$
Mirror Types
Alg
(square mirror tiles)
Guldros
(round mirror)
Krabb
(wavy mirror)
Austria
Belgium
Denmark
Finland
24
22
13
15
113
111
119
107
48
28
34
21
France
Germany
Italy
Netherlands
21
22
23
20
100
97
79
101
33
51
44
20
Norway
Spain
Sweden
Switzerland
12
32
15
19
82
112
94
67
27
34
24
27
United Kingdom
25
115
30
Source: Haskel and Wolf (1999)
Table 8.6
Burda & Wyplosz Macroeconomics 3rd edn
OXFORD
UNIVERSITY PRESS
€2000
1%
Cost of cash inventory (€):
Number of
trips = n
1
2
3
4
5
6
Interest cost
(PY /2n )i
10.00
5.00
3.33
2.50
2.00
1.67
€1
PY
TC= i 
+cn
2n
Trip's cost
(cn )
1.00
2.00
3.00
4.00
5.00
6.00
Total cost
11.00
7.00
6.33
6.50
7.00
7.67
Table 8.7
OXFORD
Burda & Wyplosz Macroeconomics 3rd edn
UNIVERSITY PRESS
€2000
1%
€1
PY
TC= i 
+cn
2n
OXFORD
Burda & Wyplosz Macroeconomics 3rd edn
UNIVERSITY PRESS
Central Bank
Assets
Liabilities
Foreign assets
Reserves of
commercial
banks
Loans to comm.
banks
Claims on
governments
Assets
Liabilities
Bank notes held
by nonbanks
Bank notes held
by nonbanks
Deposits of
government
Net worth
Commercial Banks
Assets
Liabilities
Vault cash and
reserves at
Central Bank
Liabilities to
Central Bank
Loans and
securities
Consolidated Government
and Nonbank Private Sector
Deposits of
private sector
Net worth
Where’s
M1?
Deposits of
private sector
Government and
private debt
Deposits of
government
Real assets, incl.
net worth of
banking sector
Net worth
Figure 8.1
OXFORD
Burda & Wyplosz Macroeconomics 3rd edn
UNIVERSITY PRESS
Narrow and wide monetary aggregates, France
(% of GDP)
Figure 8.2 (a)
OXFORD
Burda & Wyplosz Macroeconomics 3rd edn
UNIVERSITY PRESS
Narrow and wide monetary aggregates, Germany
(% of GDP)
Figure 8.2 (b)
OXFORD
Burda & Wyplosz Macroeconomics 3rd edn
UNIVERSITY PRESS
Narrow and wide monetary aggregates, UK
(% of GDP)
Figure 8.2 (c)
OXFORD
Burda & Wyplosz Macroeconomics 3rd edn
UNIVERSITY PRESS
Narrow and wide monetary aggregates, USA
(% of GDP)
Figure 8.2 (d)
OXFORD
Burda & Wyplosz Macroeconomics 3rd edn
UNIVERSITY PRESS
Money demand and prices
(assuming no real GDP growth)
M/P
M/P
M/P
M
P
M
P
M
DP/P
P
DP/P>0
DP/P=0
0
Time
(a) Zero inflation
0
0
Time
(b) Constant inflation
Time
(c) Rising inflation
Figure 8.3
Burda & Wyplosz Macroeconomics 3rd edn
OXFORD
UNIVERSITY PRESS
Equilibrium in the money market
Nominal interest rate
Supply
i
Demand: L(Y,i,c)
0
Real money stock
Figure 8.4
Burda & Wyplosz Macroeconomics 3rd edn
OXFORD
UNIVERSITY PRESS
Expansionary monetary policy
Nominal interest rate
Supply
A
i
i
A´
Demand: L(Y,i,c)
0
Real money stock
Figure 8.5
Burda & Wyplosz Macroeconomics 3rd edn
OXFORD
UNIVERSITY PRESS
Increase in real economic activity
Nominal interest rate
Supply
i
A´
A
i
Demand: L(Y,i,c)
0
Real money stock
Figure 8.6
Burda & Wyplosz Macroeconomics 3rd edn
OXFORD
UNIVERSITY PRESS
Decline in transaction costs
Nominal interest rate
Supply
A
i
i
A´
Demand
0
Real money stock
Figure 8.7
Burda & Wyplosz Macroeconomics 3rd edn
OXFORD
UNIVERSITY PRESS
Money market disequilibrium
Nominal interest rate
Supply
B
i
A
i
A´
Demand
0
C
C´
Real money stock
Figure 8.8
Burda & Wyplosz Macroeconomics 3rd edn
OXFORD
UNIVERSITY PRESS
Money, inflation and the nominal exchange rate in
the long run: OECD countries, 1970 to present
6%
18%
16%
CPI inflation
P
14%
GR
4%
Exchange
rate
depreciation
J
CH
A
2%
12%
DEN
10%
E
I
IRL
8%
DEN
FR
6%
B
4%
USA
A NL
CH
2%
SFN
AUS
CDN
NZL
P
-6%
10%
IRL
FR
N
NZL
0%
5%
E
SFN
-4%
M1 growth rate
0%
UK
B
I
CDN
J
D
0%
-2%
AUS
N
D
NL
15%
Inflation differential
GR
-8%
20%
-10%
-5%
0%
Figure 8.9
5%
Burda & Wyplosz Macroeconomics 3rd edn
OXFORD
UNIVERSITY PRESS
Money and long-run growth
Nominal interest rate
Supply
A´
A
B
Demand
0
Real money stock
Figure 8.10
Burda & Wyplosz Macroeconomics 3rd edn
OXFORD
UNIVERSITY PRESS
Nominal interest rates, UK and the Netherlands
16
United
Kingdom
14
12
10
8
6
Netherlands
4
2
0
1870
1880
1890
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
Figure 8.11
OXFORD
Burda & Wyplosz Macroeconomics 3rd edn
UNIVERSITY PRESS
Money demand and hyperinflation in Russia
6.0
2500
5.5
5.0
1500
4.5
4.0
1000
3.5
Inflation (annual rate)
Real money supply
2000
Real Money Stock
(left scale)
Monthly Inflation
(right scale)
500
3.0
2.5
0
1992
1993
1994
1995
1996
Figure 8.12
OXFORD
Burda & Wyplosz Macroeconomics 3rd edn
UNIVERSITY PRESS
PY
one trip
PY 2
t=0
PY
2
t=1
two trips
t=0
PY
3
t=0
PY
4
t=0
 PY 


 2 
t=1
Trips to the
bank and
average
money
2 holdings
three trips
 PY 

 2
3


t=1
four trips
 PY 

 2
4

t=1 
Figure 8.13