How required reserve ratio affects distribution and velocity of money

2005/06/02 by Ning Xi, Ning Ding, Yougui Wang
Economics, Econometrics and Finance · Mathematics · Physics and Astronomy · #Central bank #Complex Systems and Time Series Analysis #Distribution (mathematics) #Econometrics #Economic theories and models #Economics #Endogenous money #Mathematical and Theoretical Analysis #Mathematics #Monetary economics #Monetary policy #Reserve requirement #Velocity of money #cond-mat.stat-mech #physics.soc-ph #q-fin.GN

paper · pdf · doi:10.1016/j.physa.2005.04.014

21 pages, 8 figures

openalex publication_date 2005/06/02 · arxiv created 2005/07/21 · arxiv updated 2009/12/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/05

Abstract

In this paper the dependence of wealth distribution and the velocity of money on the required reserve ratio is examined based on a random transfer model of money and computer simulations. A fractional reserve banking system is introduced to the model where money creation can be achieved by bank loans and the monetary aggregate is determined by the monetary base and the required reserve ratio. It is shown that monetary wealth follows asymmetric Laplace distribution and latency time of money follows exponential distribution. The expression of monetary wealth distribution and that of the velocity of money in terms of the required reserve ratio are presented in a good agreement with simulation results.

Citations

• Effects of saving and spending patterns on holding time distribution
• Statistical mechanics of money: how saving propensity affects its distribution
• The circulation of money and holding time distribution
• Statistical mechanics of money
• Transfer potentials shape and equilibrate monetary systems
• Evidence for the exponential distribution of income in the USA
• Temporal evolution of the “thermal” and “superthermal” income classes in the USA during 1983–2001