Acta Oeconomica Pragensia 2014, 22(5):3-17 | DOI: 10.18267/j.aop.449

Czech national bank's influence on the quantity of money in the economy

Zbyněk Revenda

Vysoká škola ekonomická v Praze, Fakulta financí a účetnictví (zbynek.revenda@vse.cz). Autor děkuje za pomoc se zpracováním dat Milanu Szaboovi.

The latest financial crisis, among other consequences, has led to significant reductions in bank lending. Because cashless bank loans granted to non-bank clients are the dominant way of issue of money into the economy, reducing of them influenced also deflationary pressures. Central banks have tried to respond by expansionary monetary policy in the form of purchases of debt securities from banks and interest rate cuts. However, without any significant effect. Banks did not use a higher quantity of money in the banking system to order to increase granting of loans into the economy. We could observe the similar problems in the Czech Republic. Analysis of data between late 2008 - mid-2014 reliably confirms the weak impact of the Czech National Bank on the development of credit and the quantity of money in the economy. We analyzed data on currency, bank reserves, the monetary base, the monetary aggregates, deposits and loans. Separate analysis concerned the money multipliers and the credit multiplier. The banking system in the Czech Republic is also very specific in the existence of large excess bank reserves. The policy of lowering interest rates by the central bank had not the desired effect, so the only possibility was depreciation of the domestic currency. Another enormous increase in bank reserves as a direct result of unsterilized foreign exchange intervention again did not lead to a significant growth in loans and the quantity of money in the economy. Pressures against deflation can therefore be expected only from the reaction of households and firms to weaker domestic currency.

Keywords: capital, central bank, credit, deposit, monetary policy, multiplier, regulation

JEL classification: E4, E5, G21, G28

Published: August 1, 2014  Show citation