tailieunhanh - The Chicago Plan Revisited

At this point, paleontologists have found few well-documented cases that match the original model of punctuated equilibra, with rapid change happening only during speciation. But Eldredge and Gould’s ideas have led to some signifi- cant changes in how paleontologists look at the fossil record. For example, Gene Hunt, a paleontologist at the Smithsonian Institution, recently developed a method for statistically analyzing patterns of change and used it to study 53 evo- lutionary lineages ranging from mollusks to fishes and primates. In 2007, Hunt concluded that only 5% of the fossil sequences showed signs of directional change. The other 95% was about evenly split between random walks and stasis | WP 12 202 The Chicago Plan Revisited Jaromir Benes and Michael Kumhof INTERNATIONAL MONETARY FUND 2012 International Monetary Fund WP 12 202 IMF Working Paper Research Department The Chicago Plan Revisited Prepared by Jaromir Benes and Michael Kumhof Authorized for distribution by Douglas Laxton August 2012 This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author s and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author s and are published to elicit comments and to further debate. Abstract At the height of the Great Depression a number of leading . economists advanced a proposal for monetary reform that became known as the Chicago Plan. It envisaged the separation of the monetary and credit functions of the banking system by requiring 100 reserve backing for deposits. Irving Fisher 1936 claimed the following advantages for this plan 1 Much better control of a major source of business cycle fluctuations sudden increases and contractions of bank credit and of the supply of bank-created money. 2 Complete elimination of bank runs. 3 Dramatic reduction of the net public debt. 4 Dramatic reduction of private debt as money creation no longer requires simultaneous debt creation. We study these claims by embedding a comprehensive and carefully calibrated model of the banking system in a DSGE model of the . economy. We find support for all four of Fisher s claims. Furthermore output gains approach 10 percent and steady state inflation can drop to zero without posing problems for the conduct of monetary policy. JEL Classification Numbers E44 E52 G21 Keywords Chicago Plan Chicago School of Economics 100 reserve banking bank lending lending risk private money creation bank capital adequacy government debt private debt boom-bust cycles. Authors E-Mail Addresses jbenes@ mkumhof@ 2 Contents I. Introduction.