Abstract
Banking systems based on the fractional reserve banking process have been in use for several hundred years. However textbook models of these systems do not include either loan repayments or loan defaults, and predict the evolution over time of a stable, asymptotically converging process governing credit and money supplies to the general economy for which there is no empirical evidence in long run monetary time series. In this paper we describe a computer simulation of a simplified model of a fractional reserve banking system that includes loan repayment.We show that this demonstrates several issues in the accepted model including instabilities arising from flows of money and credit between different banks, a discrepancy with the accepted value of the money multiplier within the system, and the appearance of a cyclic governing function over time.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
Similar content being viewed by others
References
Berardi, M.: Beyond the static money multiplier: In search of a dynamic theory of money. Artificial Markets Modeling, Volume 599, pp 1-16 (2007)
Fisher, I.: The Purchasing Power of Money, its Determination and relation to Credit, Interest, and Crises”, The Macmillan Company(1922)
Quinn, S.F. : Banking before the Bank: London’s unregulated goldsmith-bankers, 1660-1694, Ph.D Thesis University of Illinois (1994)
Higonnet, R.P: Bank Deposits in the United Kingdom 1870-1914, pp 329-367 The Quarterly Journal of Economics Volume 71 No. 3 (August 1957)
British parliamentary reports on international finance: The report of the Macmillan committee, pp. 34-35. H.M. Stationary Office, London (1931)
Mankiw, N.G.:Principles of Economics,pp 600-604, Dryden Press (1997)
Palley, T.I: Endogenous Money: What it is and Why it Matters, pp 152-180 Metroeconomica Volume 53 No. 2, Wiley (May 2002)
Stamp, J.C.: The report of the Macmillan Committee, pp 424-435. The Economic Journal Volume 41, London (1931)
Rothbard, M.: Fractional Reserve Banking The Freeman, (October 1995)
Federal Reserve Bank of Chicago: Modern Money Mechanics: A Workbook on Bank Reserves and Deposit Expansion, Chicago (1992)
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2011 Springer-Verlag Berlin Heidelberg
About this chapter
Cite this chapter
Mallett, J. (2011). Modeling the Textbook Fractional Reserve Banking System.. In: Osinga, S., Hofstede, G., Verwaart, T. (eds) Emergent Results of Artificial Economics. Lecture Notes in Economics and Mathematical Systems, vol 652. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-21108-9_5
Download citation
DOI: https://doi.org/10.1007/978-3-642-21108-9_5
Published:
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-642-21107-2
Online ISBN: 978-3-642-21108-9
eBook Packages: Business and EconomicsEconomics and Finance (R0)