E51 - Money Supply; Credit; Money MultipliersNávrat zpět

The public finances of the Czech Republic fell into deep deficits during the pandemic, while the money supply growth rate accelerated. We make a basic comparison of monetary acceleration during the first two years of the pandemic with other countries. We verify that this acceleration in the Czech Republic was partly due to commercial banks increasing credit to the government. We argue that purchases of government bonds by non-residents have a similar effect. This is particularly true when non-residents use existing koruna deposits held by them, partly as a result of past foreign exchange interventions, to purchase government bonds. While there was an acceleration in monetary growth during the pandemic, there was a decline in monetary growth during the Great Financial Crisis (GFC). However, our analysis suggests that this was due mainly to a decline in private credit growth during the GFC. We see no fundamental reasons for a structural change in money demand as a result of the pandemic. We therefore believe that unless the observed monetary acceleration is offset by slower-than-trend monetary growth in the near term, it will translate into an increase in the price level.

Relative changes in home and foreign assets of the Czech banking system are negatively correlated in the period 1996-2017. The target of the research is to test this empirical fact deeply to explain how far this is only a balance sheet effect that is a result of booking the exchange rate changes in monetary survey statistics and how far this is a consequence of economic system behaviour. Our empirical analysis using the Granger causality test and the unconditional ARDL ECM model does not rule out the validity of the balance sheet hypothesis. Besides, it explains the economic nature of this phenomenon in relationship with GDP, exchange rate, foreign reserves, short-term interest rates and bank capital dynamics and confirms a possibility of substitutions between net home and foreign assets of a banking system within a money creation process represented by the M2 monetary aggregate.

Using a cointegration, we show that there is no long-term relationship between money in the economy M and real (and nominal) GDP and CPI (US data from 1959 to 2018). There is no empirical evidence to support the textbook claim that "inflation is always and everywhere a monetary phenomenon". Only when we shorten the time series to the period before the crisis (1959-2008), there is a cointegration between CPI and M2, but only at the 10% significance level and only according to one of two co-integration tests. The relationship that existed before the crisis either had to fall apart or change. There are three possible explanations: (1) The growth of M in low-inflation economies (CPI below 10% annually) is distributed more equally between CPI and real GDP than in the event of significant changes in M. (2) The falling velocity of money after the crisis of 2008/2009. (3) The last possibility is an increase in the adequacy problem of inflation - the CPI does not adequately reflect the economic definition of inflation.

There are many myths associated with gold, especially its historical role. Notably the supporters of free banking criticise the current monetary system and consider present money unbacked. This does not correspond to the fact that the money is backed by the assets of the issuers. There are demands to return to full gold backing. The analysis of the share of gold in the monetary base and in the monetary aggregates M1 and M2 for the United States of America and the Czech Republic over the period 1993-2016 shows a complete shortage of gold. The results are in units or tenths of percent. The author discusses some other unsolved issues, primarily the high price volatility and the impossibility of unlimited convertibility. Attention is also paid to currency board systems with full foreign currency backing. With the hypothetical admission of full gold backing, restricting the money supply by the amount of gold would quickly and dramatically curtail the supply of credit, with subsequent impacts on economic growth. Requirements for full gold backing of present money are completely illusory.

The article deals with constraint of credit supply consistent with external solvency of economy and solvency of banking sector under negative international investment position, foreign ownership of banking sector and growing bank´s capital and stable funding requirements. The target is to define main parameters of sustainable supply of funding of external capital providers and to test the relationships among determinants of external solvency, foreign sources of funding the economy and banking sector and credit aggregates in the Czech Republic using unrestricted ARDL ECM model. The results show growing inflow of debt funding motivated by export led growth, the Czech FDI investments and lack of euro liquidity due to CNB foreign exchange interventions. The debt provided by foreign parent companies could overcome a constraint of home banking sector´s credit supply. Growing export causes investments to production capacity financed by equity of foreign holders. The cost of negative NFA is driven by profitability of exporters which is positively correlated with GDP growth. The bank´s capital incl. reinvested profits do not reflect a credit cycle due to excess of capital in the Czech banking sector.

Paper deals with an important area of monetary economics, the demand for money. Concretely we propose results from an empirical investigation of determinants of the demand for real money balances in the Czech Republic. From the methodological point of view we use models of multivariate time series analysis in the co-integrated context, the VAR and VEC models, and the generalized impulse response functions for an estimation of trajectories of adjustment processes. Based on the results, we can say that the real money balances in the broader definition (in the sense of M2 monetary aggregate) are demanded by economic agents in relation to a long-run evolution of their needs, and during this, they are not systematically influenced by economic shocks. This also implies stability and simple predictability of the demand. Demand in the narrow sense, including currency and demand deposits, exhibits a greater volatility due to different shocks. Therefore this narrow demand is continuously adjusted to arising disequilibriums, going from both inside and outside of the economy. Nevertheless in the long run there exists an equilibrium relationship among the demand for real money balances in the narrow sense, the interest rate, the real effective exchange rate and the rate of unemployment. Majority of observed relationships is consistent with a priori assumptions, which are formulated through a theoretical model. Finally, it is possible to show, that direct long-run equilibrium relationship between the demand for real money balances in the narrow sense and the volume of transactions (or real production) does not exist. On the contrary, we have also found that a transactions demand is influenced by the business cycle. However the elasticity of transactions demand with respect to the business cycle is relatively small and hence we conclude that a considerable part of this demand is constant over time and a speculative demand is more important for the description of the demand for real money balances development. The difference between a behavior of the demand for real money balances in the narrow and in the broader definition, we are explaining by a portfolio re-optimization effect.

The article formulates the general political-economic possibilities for smoothing of business cycles under the realistic assumptions of the current credit-economy. Firstly it endeavours to explain the mechanism of the financial and real economy functioning with an emphasis on banking sector. The initial theoretical model is considered as unrealistic but proper for demonstration of the consequences of money endogeneity, mechanism of banking financing and dependency of economic growth on credit growth and savings. On the basis of this explanation the article identifies the real causes of credit cycles in the current credit-economy and performs some relevant empirical evidence. The causes include insufficient credit growth, significant concentration of monetary assets, disproportionate development between inflation and excess money growth, deregulation, transmission of credit risk, deleveraging of private sector and imperfect steering of interest rates. Subsequently, author constitutes the basic political-economic tools which could possibly eliminate (or at least mitigate) both the deep and shallow recessions in ex-ante and ex-post periods. The study concludes that possible political-economic tools are following: traditional and non-traditional monetary policy, fiscal expansion, redistribution through progressive taxation, microeconomic and macroeconomic regulation. The entire study is based on US data.

The article deals with monetary disequilibrium in the theory of endogenous money. In new consensus economics, monetary disequilibrium is not considered whereas money is endogenous and passive. In post-Keynesian economics, there is an explicit discussion about reconciliation of money demand and supply. Based on careful distinction between money and credit markets, it is argued that monetary disequilibrium can occur even when money is endogenous and therefore money is endogenous and active. This is because of  insufficiency of reflux mechanism. The article suggests ways in which new consensus should be supplemented to incorporate this issue. This is also important for monetary policy otherwise a part of transmission mechanism is left out.

The article deals with the relationship of post-Keynesian economics to new consensus as a theoretical framework of inflation targeting. First, new consensus with its roots in Wicksell's approach is briefly introduced. In the next parts differences and meeting-points of new consensus and post-Keynesian economics are discussed. Among the main similarities is identified: short term interest rate management, endogeneity of monetary base, endogeneity of money supply. But a lot of basic differences are found (goals of monetary policy, interest rate functions, nature of inflation, shape of Phillips curve and others). As a result, on the general level new consensus and post-Keynesian economics seem to be rather incompatible.

In this paper the stability of an inflationary process is examined. A dynamic model of the inflation has been developed based on the quantity theory of money. Some theorists say that any rate of inflation other than zero is inherently instable. They say that as people become aware of the fact of continues inflation, however slow, they will anticipate inflation and this anticipation generates inflation. We showed that there exists a model, which helps us to understand that inflation is not necessarily explosive. We follow the ideas of Ph. Cagan.

The paper deals with unintended consequences of the monetary union for the level of debt in the member countries of the eurozone. First, it is shown that there exist systematic inflation and real interest rate differentials among the member countries. These differentials reach up to 3 percentage points per year between the high inflation countries (e.g. Ireland) and the low inflation ones (e.g. Germany). Different rates of growth of private or total domestic debt in individual countries were closely connected to inflation differentials. Thus the debt was rising very rapidly in high inflation countries. Surprisingly, national saving rates remained stable in most countries so they cannot explain the differences in growth rates of the debt. Instead we proposed a portfolio model of the debt according to which the change in the debt is due to a reshuffle of individual portfolios. The model also implies that asset prices should change in the same direction as does the debt. This seems to have been the case in the eurozone as well.

Effectiveness of actual monetary policy depends on the ability of central banks to stabilize the fluctuations of overnight interest rates around their official policy rate. To ensure the functionality of the stabilization mechanism needs the successful balancing between bank's demand for reserves and central bank's supply of the reserves in interbank market. I discuss the main sources of temporal gaps between the demand for and the supply of the reserves and their impact on the volatility of overnight interest rates. In our theoretical explanation there is stressed the role of intertemporal substitution in fluctuation of demand for reserves. In the empirical part there is analysed the behaviour of overnight interest rates in the Czech interbank market (2001 - 2004) in the context of excess liquidity. Some structural changes in interbank market were found - undershooting of non-stability of excess liquidity and decline of overnight interest rates volatility due to new possibility of intraday credit.

The post-Keynesian approach to the nature of money brings some other conclusion to the monetary policy, independence of a central bank and function of commercial banks. The source money is created by demand of businessmen especially. Loans create deposits, deposits create reserves. Central bank plays two roles: lender of last resort and inflation supervisor. Creditting by commercial banks and their credit policy in post-Keynesian economics is considered as credit rationing. If the role of central bank - lender of last resort - is not connected with changes of regulation, which reduce new practice of financial markets to avoid regulation, the influence of central bank to fight with inflation declines. Post-Keynesian economics is not directed against competence and independence of central bank. On the contrary, it welcomes the more direct influence of central bank on commercial banks and other financial institutions, however, with use of alternative limiting facilities.

This article presents three competing models of money supply determination as derived in Palley (1996). Two of the models can be considered post-keynesian in nature and identified with accommodationist and structuralist approach to money endogeneity. Post-keynesian models are contrasted with orthodox money multiplier model. Presentation of the models enables not only to derive hypothesis for empirical testing but also to compare the two post-keynesian models. The accommodationist and structuralist models are not viewed as mutually inconsistent but rather as complements. Scope for potential synthesis and future research is indicated.