Money supply determination and a lagged reserve accounting system
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The Department of Economic Science was founded in 1898 to teach economic theory as a truth of industrial life, and was very much concerned with applying economics to business and industry, particularly agriculture. Between 1910 and 1967 it showed the growing influence of other social studies, such as sociology, history, and political science. Today it encompasses the majors of Agricultural Business (preparing for agricultural finance and management), Business Economics, and Economics (for advanced studies in business or economics or for careers in financing, management, insurance, etc).
History
The Department of Economic Science was founded in 1898 under the Division of Industrial Science (later College of Liberal Arts and Sciences); it became co-directed by the Division of Agriculture in 1919. In 1910 it became the Department of Economics and Political Science. In 1913 it became the Department of Applied Economics and Social Science; in 1924 it became the Department of Economics, History, and Sociology; in 1931 it became the Department of Economics and Sociology. In 1967 it became the Department of Economics, and in 2007 it became co-directed by the Colleges of Agriculture and Life Sciences, Liberal Arts and Sciences, and Business.
Dates of Existence
1898–present
Historical Names
- Department of Economic Science (1898–1910)
- Department of Economics and Political Science (1910-1913)
- Department of Applied Economics and Social Science (1913–1924)
- Department of Economics, History and Sociology (1924–1931)
- Department of Economics and Sociology (1931–1967)
Related Units
- College of Agricultural and Life Sciences (parent college)
- College of Liberal Arts and Sciences (parent college)
- College of Business (parent college)
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Abstract
Money supply determination under a system of lagged reserve accounting is analyzed. In Model I, unborrowed reserves, and in Model III, the Federal funds rate are utilized as policy variables. Liability management, for the banks' portfolio adjustment, is used in Models II and III. The values of the decision variables investments, CD's, and EURO's are optimized by the individual bank's profit maximizing procedure. Time deposits and the nonbank-public demand for commercial loans are assumed to be exogenous. The optimum values of the decision variables are aggregated for optimization in the entire banking system. A deposit supply equation is formulated under each model. Ordinary Least Squares and Two Stage Least Squares procedures are used to estimate the equations. Deseasonalized, weekly, time series data for the period of January, 1970, to July, 1976, are used for the estimates. The variation of the change in the deposit supply is significantly explained by the lagged values of the variables and by the change in the nonbank-public demand for commercial loans. The explanatory power for the three month Treasury bill rate, FRB's discount rate, and the Federal funds rate is not significant in the models. These support the hypothesis that under LRA, the past activities of the banks play a dominant role in their current and future decision making processes.