This paper presents a multi-agent model describing the main mechanisms of money creation and money circulation in a credit economy. Our special attention is paid to the role of debt in the two ...processes. With the agent-based modeling approach, macro phenomena are well founded in micro-based causalities. A hypothetical economy composed of a banking system and multiple traders is proposed. Instead of being a pure financial intermediary, the banking system is viewed as the center of money creation and an accelerator of money circulation. Agents finance their expenditures not only by their own savings but also through bank loans. Through mathematical calculations and numerical simulation, we identify the determinants of money multiplier and those of velocity of money. In contrast to the traditional money creation model, the money multiplier is determined not only by the behavior of borrowing but also by the behavior of repayment as well. The velocity of money is found to be influenced by both money-related factors such as the expenditure habits of agents with respect to their income and wealth and debt-related factors such as borrowing and repayment behaviors of debtors and the reserve requirements faced by banks.
•An agent-based model is developed to study money creation and circulation.•The money multiplier is determined by not only borrowing but also repayment.•The velocity of money depends on both money-related and debt-related factors.
The role of debt in aggregate demand Xing, Xiaoyun; Xiong, Wanting; Guo, Jinzhong ...
Finance research letters,
March 2021, 2021-03-00, Volume:
39
Journal Article
Peer reviewed
•We construct a simple macroeconomic model aiming to decomposing aggregate demand.•Besides money, debt has its separate channels in formation of aggregate demand.•National income comes from money ...circulation, debt circulation and credit expansion.•Public debt contributes to aggregate demand only through its expansion.
With the purpose of performing a simple and original analysis on the mechanisms through which money and debt affect aggregate demand, this paper presents a stock-flow-consistent model in which the role of credit creation of banks is emphasized. By conducting theoretical analysis on income determination in an alternative way, we demonstrate that the equilibrium national income can be expressed as flows generated from three sources, namely money circulation, private debt circulation, and total credit expansion.
With the increasing complexity of payments and the distances between participants in financial transactions, the number of third parties involved in making payments is also growing. This entails an ...increase in commissions. Cryptocurrency solves this problem. This, in its way, is a digital “cash” that can be used by network participants, regardless of the distance and type of transaction. Cryptocurrency is a new type of electronic money, is rapidly gaining popularity.Purpose. The purpose of the article is to study the directions of increasing the level of development of cryptocurrencies in Ukraine.
This paper proposes an elementary model describing the money circulation for a system, composed by a production system, the government, a central bank, commercial banks and their customers. A set of ...equations for the system determines the main features of interaction between the production and the money circulation. It is shown, that the money system can evolve independently of the evolution of production. The model can be applied to any national economy but we will illustrate our claim in the context of the Russian monetary system.
•The set of equation for money circulation in the production system is discussed.•The contribution to GDP from the money system is defined and discussed.•The applicability of the model to the money circulation in Russia is confirmed.
The key objective of this study is to investigate how capital formation and technological advancement affect foreign direct investment (FDI) generation in Bangladesh and whether money circulation has ...a positive or negative impact on FDI. This study has used time series data from 1972-2021, and the result of the unit root test indicates an autoregressive distributed lag (ARDL) model because of stationarity at levels I(0) and I(1). The cointegration test confirms the cointegration among the variables: in the short run and long run, capital formation and technological advancement have a positive impact on FDI; on the other hand, money circulation discourages FDI because of its negative coefficient. The speed of adjustment (CointEq(−1)) is 0.28%, which indicates the estimation moves toward an equilibrium condition from a disequilibrium condition. Causality shows there is bidirectional causality between FDI and money circulation, unidirectional causality between technology and FDI, bidirectional causality between money circulation and capital formation, and unidirectional causality between technology and capital formation. This finding suggests that capital formation should be a great consideration, and technology is also required to expand FDI volume. Further study would include considering other macroeconomic variables such as labor, human resources, and energy issues.
The author asserts that the credit multiplier of the country’s banking system regulates the growth of the economy and characterizes the level of its development. It is proved that the limiter and the ...indicator of economic development is the share of value added by production in the aggregate product, which determines the existing technological mode. It is proved that the ratio of the nominal GDP to the monetary base of the Central Bank is identical to the product of the credit multiplier and the velocity of money circulation that is constant for each technological mode. Here, industrial economies, developed economies, and highly developed economies are considered. The marginal zero inflation multiplier is determined, at which the real GDP growth stops and a transition to a deflationary crisis occurs. It is established that the Central Bank’s increase in the interest rate to reduce inflation leads to a sharp decrease in the multiplier and lending to production, while credit regulation allows us to reduce inflation by targeting without changing the interest rate and without reducing lending. A method for regulating the economy with a credit multiplier using an engineering calculator was developed. The economic recovery of Ukraine in 2024–2025 was simulated.
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