Teaching the Linkage Between Banks and the Fed: R.I.P. Money Multiplier

Abstract: The money multiplier has been a standard concept in introductory economics classes for decades, but changes in the way the Fed implements monetary policy has made the model obsolete. This issue provides information about the linkages between the Fed and the banking system and provides teaching suggestions.

Keywords: administered rates; ample reserves regime; arbitrage; asset; balance sheets; balance sheet policy; dual mandate; federal funds rates; Federal Open Market Committee (FOMC); fomc; financial capital; forward guidance; interest on reserve balances; iorb; interest on reserve balances rate; liability; liquidity; monetary policy; monetary transmission; money multiplier; open market operations; policy rate; reservation rate; reserve balances; reserve requirements; U.S. Treasury securities;

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Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Page One Economics Newsletter

Publication Date: 2021-09-17