- - -- 1 —, k~

Albert Fishlou

tes ou the Monetary Btadet

Tho monetary budgot is effectively a relationabip between the aBSct3 of the monetary authori.tiea and var1ots inonetary magnitudes auch

* as the moans of payment sight deposita 9 monoy in tho lianda of the • publio, OtCe The baslz for the relattonships are the reserves required

to tio beld tith the monetary authorities, and •the loakage ot potential resorvci in the tona of emissions - to tho publio sectõr0 Au additional element eutera in Brazil due to tho position 0±' the Bank 0±' Brazil ihioh is both a couzmercial bank as iel1 as consolidateI with tho monetary authonittea0

The four parametera which tbus enter luto the serias of aulti-plier 0±' the asseta ef the central bank are r, the reserve rate; 2 ,,

thc rtlo of sight deposita of the Bank of Brazil to the sight deposita of cou!,crelal banks; f tho natio 0±' money balances tu the hands of tho publie to doposita; and a, the natio 0±' cight te total bank deposita0

It s then poaib1e to write the multiplier 0±' asseta to the moa o pziymcnt as a+ Ba + f for deposita as 1

.r+Ba +f r+Ba+! etc0 Th denominator in each case representa the draín from the commer ciai banktng system to the monetary authorities and public0 The numora tor ro'reente the relationshlp between total deposita of the banking systern and the speoific magnitude baing projected0 Thus the means 0±'

payment are equal to o lght deposita in the commeroial banking system, aD; tho aight deposita tu tbe Bank 0±' Brazil Ba D; and the money tu the handa of the public, f D. Âccord.ingly the multiplier contains

á a+Ba+f,

In au earlier paper, Samuel NOnley elaborated the vanious mult.p1iera and examined the bahavior of the four parameters These he found to be re].atively unstable0 For example f varied trem a valua of p644 tu 1959 to a va].uo 0±' 333 tu 1966 9 and atili lower last year; B incroasod from o191 tu 1957 te 296 in 1966 9 etc0 But he considered thom ao bohavioral parameters oboae values would aid in predioting the futuro monetary magnitudes0 This, however, is only partially obrreot0 Thc ;entral Bank 18 tu a position te use compuløory reserve requirementa in sch a way as te offset vaniationa tu voluntary reserves ahould it dcsie L1kevIsep within certaIn limita, the partioipation 0±' the. Bauk 0±' Bzil within the total banking system is a matter ot ohoice0 Mõre

kj'Aggres3Ive lending policies as oppoaed te rediscounta are au obvious Jxample. This leaves ±' and a Tbe formei' does refleot public

4I -

MI3TIO DO PLAJEJAMENTO 3ilTU10 [E P:sQLIsA

EcOÓMlCOSCClAL P.PUCÁDÂ (1PEA)

Data

bhavioral preferenco3 9 but not iii rato lCorm, Tbc cah tn th hrd' ot the pubite is a fivaction not of total dpits but rathr tc V01Um of montary trasactions Only Wore tbre a dif rnti rate of .rturn on dopositE and oash aouid one visua1iz as a doision paxanitr0 Undr prseit õiroumstances it is a rosultwhich cores about as a consequonce of a cortaIn dornand fo oash and the ôepondnt xpansion of deosits Tbe declino lu year should nt bo

viowed as an adjustmont in publio proferonces so muoh as a conunoe' of the apId growth in doposits T1e final paramoter a i reiated to private sotor bahavior and a funotion in part of tho Intoy rata on time doposit ooiiparod with othez aitírnatives

In light of tese .rernarks it iiay b more interosting to examino tho nQnCaVy bdgot frow the polut o' view of 4 he goals of the ontry u1horiti8 and the resultant paramt1er.va1ues and ast

expansiGn implied That Isp írAOtead of startng frem the rate o groth of asseta impiicd by tbe defioLt the áurplus on coffoe ccount ote it is porhaps more reasonahl to regard tkio oxpansioi2 orasst as an tunent rethr than a ive aid oa tI,e other haud 9 t<i ooncetve: ef oertãlt trgets for conorial bank loans to the :pi.váto actor D and money supply xpaniion

y sucb a procoes soi.ecting as tuots th moans oÍ and. comerelal baxik loas to tho private seoor and ImPO*Sluc as a constraint the publio demand for absoluto quantities of paper Eroney 0 fo can redue three of the paraotrs to fiotiois of tbo targots,,tho remalnlng parameter, and the sizo of the aes ot the monetary authorities

Thuø wc haw k2(a1)

. (a

a(k0 - -Á Q + R)

whero k0 Means ot Payments

Oomniorcialbark loans to tIo pvate sootor,

k2 Paper.moncyinthe bands of tb pubilo

A Assots of the 1Vonstary Autb*rios

Other rt aaots of commeroiaibanko

Rodionts

These euato witi iaIu ubtitv:;ed Lor tho k Sq

and P, yiid the tLrd values of th arater for cach paio Qf ie of the MWmctax7 Âtthit Table 1 1y tIno r€u1t•

thre il1uitativ. . oassumptIons. 12h08C autiou :fiw.t a rato of i)n of rdit i1 iitary tIIu3 to

P"-Ivat3.tor cai . to 27 per t wbi1 ho:111n rotary, ex.Lxnalmi to 20 poront, It aio pr niier liior or unitazy iastioty lu tho diand for p.apr ioey 0as 2 shots ti Influence oZ ror t1mz de~osito. Case 3 ind1ats a strtit q.'cnt 'or oredit. The prisabio ast expans1on.a are rospe%iviy about 13 pr• eet 19 por ot aid 175 per ali ies than t expa!sion In the moana oZ pata . . . . .

• ee resu1t ia be. avaiid a fIlo

• Witb vne auxwant levei of time d oeits relatire t dpoitE it is diffiuit te expand co erOia .bak õrodit te 1 prIava*Zm sector at xatow ii exoes ef t7 mea: eX the payrt Th. reasou 5j •1e dcpos.ts make ip the hulk the moano óZ prent and t i3 d1ffieit for loam te expand moro :apidly tIm-m depo.:t IthOut a eizeable IOt1O1 In tIn.o rese^-o r:jcP r ffin10h , jfl

€asee thQ mu31t31p3.lor by such Ma extmt tat iitti exic im aeets 18 pe1b1e0 . . . . .

31nCe Baik eX Brz11 leans te the private • ecto? part. eX asot pansiox the clar eid inevitble implication c it i . mp ib1e.to rotde sbctantiai raI Increa SOS mn erect te tho priate . oetor ect at the QZpOnse Of t ,.1, 10 PublIQ ecctex An expansion X crdIt equei te t mean eX pa:ient ain ry oy •f t}e price iee1 te th moan eX paymnt. In peduet ip110 a zai expion OTuai t tho rata eX um-K;h. But thIS wcuid oniy maiitain tie ret liquidity ef t: oewtoz-r81&tlVO te it own PXGduCt .. net rca it And in thIs yea hen v1ocity may be expoõtd te ineraee in viw f the rtin iidy of the ByStem 9 and pie rise moxQ than tb.e i~ns eX he real ero6it te tbe pivate sectóx , .eeuid co evabiy deoiine

An tnereaed floi eX time depoiIt te commerclai btks Improvo the ituatiem . • perattting an expawion eX lGanaitwt a co espcn&tn ia in tbe mcy uppl.y tie eubtiton c; near meney for noney can be made It is obvioe that for a et CX oredit ob j ecti-vo monetryexpans ion and heno.e flato I ilied Even IX th eiift te time dpoits ras at t}eCxPm0F3a eX ether y1e3.8in asot f the henking Sys tem, 1S a more efficiet upplio. o2 .ore.dit t ethor fianoIa1 imP utIon. one has a

4.

realiocation.

4) The range aí' choice aí' v-ariatton iri A is limited by the very steep siopes aí' the tiro parauietoe r and B. That is, even within reasouably wide Ia31ds oZ allowable parametrie. variatioii tu these two vaxiablea, the abotoe aí' A given the targets kc» k and constratnt k2 is almcst nu. For purposee aí' illuøtratioii, in a Qase not Inolúded tu Table 1 9 wliere ali k'a, E and Q Inorease at 25 por cent, the possible dev.tatian o! A from 25 per oent is limited to 23.5 por cent ou arte side (r1th r .225 and B to .4) and on the.oiberto: 265 per cent (4th B .2 and r a .31). whe point is tbat' the reeult mentioned In paragraph 1) aí' little posaibility aí' disorlinination bsteen various goals boause aí unacceptable leveis o£ the asseta aí' the monetary authorities is sven stronger. With pz'oportional expansicn aí' goala, poliõy inatramente are so lintLted tu effeotiveneaa that only nazrow ranges of aoiet growth aro posiEble.

The principal conolusions one rnay draii froni this exorciie are as foliows. In the Ztrst inatanoe, that the multiplir should not be viewed as a given but as a parameter. During the year ' and B oan and should be rnanipulated to offset ebanges tu ! and br.ng monetary expansion tu ]ino witb desired goala. Secondiy, the iocesa o£ preparation of thó nionetary budget ought to be linked as muoh to the deteraination aí' goals and constrainte as to estmmates aí' assete aí' the mon.tary authorities. Careful atudy aí' the latter is aí' course essential to provide au idea of which itema may be rcaaonably limited.

Thiz'd tu vtew o£ the poasible inability aí' real credit to grow tbis year wtth a poicy aí' proportional expansion duo to i.ncreased veloolty every eÍ'fort znuat be iaiato limit the growth tu total asseta tu the mónetary authorities irnt not in their bana to •the private sector. Since niuoh aí' tlie blU'(ian aí' finanaing the goverument deíioit Will tndirectly fuli ou tho private sector due to delays tu pa'meut thia provision of catinuing eredit is eepeoially important. Indicationa at the momnt are that liquidity ia not at abundantly kiigh leveis. With a returu to largar tax takes the pz'obboin is made even moro serlous. One :seible relevant woasure is an increase in time deposita aí' banks by making them aubatai.tiafly more attraotive. Caro muat elsa be given to ehamiel funda wttiLn the private seotor with view to real needa. Soa43i attention inust tleretxe be given to the aredit A~de o£ the variou3 aubsaectors aí Qe private sector as well as to eupply.

FtnLi1y, sinlNe the pre 5nay etiiiates of at expEri ,31cix oÍ ihe munetary authrtt1.R 1nd.oata the tdth which tlie in supply couid grou heycnd th 20 pr oer.tt tget aoir ttonti 111. have to be given to measures on tho eldo af tbe dan mcncy a weil as ita t3uppiy £Z nflt,rni Im 1'o be contro11u1 tb&n ye&r.

-0,382 0,053 0,280 0,419

r

-0,466

0,112

0,364

0,504

1,352 0,610 0,225

-0,012

B

1,479

0,501

0,075

-0,162

o, 523 0,358 0,272 0,219

0,576

0,345

0,248

0,193

10%

20% 25%

10%

15%

25%

Case 1:

Qj:Q0

Rj = 1.25 Re

: 1.20 k 0

kll = 1.27 1c10

k21= 1.25 k

a: .9

Case 2:

Pabie 1.

A.A

10$

15$ 20$

25% -

x .

-0,063

0,271

0,446

0,553

B

0,746

0,197

-0,090

B

0,402

0,275

0 9 209

0,169

rA

Case 1 9. except a: .87

Case 3:

= 1.25 Q0

Ri a 1.25 E0

= 1.20 1c00

k11 = 1.23 k10

1.25 k21

a .9

r

o - ( 1

o - ,

L,. - -, -

• • -: •

o

• .-- .• I•;

• •l c '1