The monetary base adjusted for required reserve ratio changes
Keywords:Monetary base, quantity of money, Italy, bank deposits, reserve ratios
The work is concerned with the relationship between the monetary base and the quantity of money in Italy. The objective is not to develop a detailed description of the monetary base for Italy, but rather to explain in simple terms how the monetary base is related to bank deposits and money, and how changes in required reserve ratios have an impact on deposit determination in an equivalent way to changes in the monetary base that result from purchases of securities or foreign exchange by the monetary authorities. Building on this exposition, the paper shows that the method that the Bank of Italy uses to adjust the monetary base for required reserve ratio changes is incorrect.
JEL: E51, E58