wachtel6
( jo.dee.westbrook@zurich.com )
Wed, 30 Sep 1998 10:42:53 -0500
Hello!
I was hoping someone could answer a question regarding Wachtel chapter =
6.
On page 107 of Wachtel, he states "The money supply is an increasing
function of market interest rates since B(r, r(superscript: d)) [bank
borrowing] increases as r increases. . . M(superscript: s) [money suppl=
y]
increases when the central bank adds to its bond portfolio (an increase=
in
Q which supplies additional reserves.)"
So, interest rates go up, money supply goes up?!?
But, on page 115, when he is describing open market operations, he stat=
es,
". . .open market sales will push down the price of government bonds wh=
ich
raises interest rates. . . If reserves are in short supply, the banks w=
ill
raise the price of borrowing, loan rates go up."
To me, this says, if the money supply decreases, interest rates go up.
This makes more sense, but it seems to contradict pg 107. So, when
interest rates go up, does the money supply go up or down?
Jo Dee
=