Money multiplier in the context of modern views on money creation: theory and facts

For a long period of time, multiple money expansion has been regarded empirically proven. Nevertheless, in recent decades it has been widely disputed, particularly in the publications of central banks and those of the BIS. In this paper we show that multiple money expansion is characteristic of underdeveloped financial systems.

In the era of multiple money expansion the volume of lending was limited by the supply of bank reserves. Today, however, the main constraint is the demand for credit. This is supported by our analysis of banks’ balance sheets as well as VAR analysis of factors of bank lending in Russia in 2005—2017.