Money, Banks & Central Banks: Deposit Creation, the Quantity Equation & Policy-Rate Rules

What you'll build

What you will be able to do

Each lab ends with a concrete result that you build yourself and the checker confirms, cell by cell.

• Build M1, M2 and M3 from a fictional banking-system table with SUMIF, measure how fast broad money grew, add up the monetary base and see how much broad money sits on each crown of base money.
• Follow a new deposit through ten rounds of lending, add up the money created, find the limit of the geometric series with two leaks and compute the money multiplier from real-looking banking statistics.
• Turn eight years of money, output and prices into nominal GDP and velocity, measure compound growth rates and use MV = PY in growth form to find the inflation implied by a money-growth plan, and the money growth that fits the target.
• Compute a Taylor-type rule rate with fictional coefficients for eight quarters, measure how far the actual policy rate deviated from it, count the quarters where policy was clearly looser than the rule and chart both rates.
• Turn eight fictional policy rates into real rates, compare them with estimated neutral rates, classify each stance as tight, neutral or loose with IFS, count the tight ones and compute a GDP-weighted regional real rate.
• Book five fictional operations on a central bank balance sheet, find the change in bank reserves as the balancing item, roll the balance sheet forward, check that it still balances and measure the banks' excess reserves.
• Measure what a fictional state earned from issuing base money in one year, separate the inflation tax paid by money holders, then simulate a steady state in which money demand falls with inflation and chart the hump-shaped inflation-tax curve.
• Turn two years of a fictional consumer price index into 12-month inflation rates, count the months inside the target band, measure the average miss and chart inflation against the band.