Liquidity and the multiple contraction of deposits, Managerial Economics

Liquidity and the multiple contraction of deposits

Many of the instruments of monetary policy depend upon limiting liquidity, which has a multiple effect upon bank' deposits through their liquidity ratios.  If however, banks keep surplus liquidity this will protect them against such measures as open market operations and special deposits.

The efficacy of open-market sales is also affected by who purchases the securities.  For open-market sales to be effective it is necessary that sales to be the general public, if the securities are bought by the banks they will have little effect upon their liquidity since most of them count as liquid assets.

Posted Date: 11/30/2012 4:40:56 AM | Location : United States

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