German banks drive money creation, challenging traditional theories.
The article examines how money is created in Germany from 1975-1998. It challenges the idea that the money stock is determined by the money multiplier and monetary base, suggesting they are influenced by the behavior of banks and private individuals. The central bank's main tool is the money market interest rate. The study found that the evidence contradicts the traditional money multiplier approach and supports a model where banks and private agents play a key role in determining the money supply.