Research On Money Creation Ability In Banking System Based On Deposit Characters Of Different Entities

The deposit money creation ability in commercial banking system is an important indicator of macro-regulation adopted by central bank, that is, if money creation ability remains steady, the central bank can adjust the base money to regulate the money supply on the market. To measure the ability of deposit money creation, we can adopt two indicators——the deposit multiplier and the money multiplier. The former takes the primary deposit as starting point, by calculating the total derivative deposits to analyze scale of money creation; the latter takes base money as starting point to calculate the monetary supply. Both of them are the indicators of money creation ability, which directly reflect the relationship between economic variables. But the deposit multiplier and money multiplier can't reveal the internal mechanism of money creation process, so that the implementation of monetary policy that central bank applied according to traditional money creation theory often couldn't reach the target. This paper aims to analyze the conduction process of money creation and study internal laws of deposits money creation in the banking system from the aspect of different economic entities'deposit behaviors, so as to provide some reference for monetary policy implement.Firstly, we studied the traditional deposit money creation theory, analyzed the unreasonable contention of the theory in practical application and pointed out that the deposit multiplier and the money multiplier may deviate from actual value. Therefore, this paper proposed to study the ability of money creation based on the analysis of deposit behaviors of different economic entities. Based on the description of money creation transmission mechanism, we divided the economic system into different sectors, including households, non-financial enterprises, government departments, government agencies and organizations, commercial banks, central bank and other sectors. Next, we analyzed deposit behaviors of different sectors and established econometric model for each sector, to determine the major factors that impact on each department's deposit level, and further integrated above sectors'deposit factors models to deduce the incremental model of total deposits, from which we can induce the main variables that affect money creation ability. Finally, In view of the incremental model of total deposits, this paper analyzed the effects of different monetary policies on deposit money creation ability and made some policy recommendations.