Demand and Supply of Bank Credit in Italy

Control of monetary base, together with compulsory reserves requirements, is the main instrument by which, in most countries, the central bank manages the volume of bank credit and bank deposits and, therefrom, the liquidity of the economy and the level of interest rates.1 Indeed, the traditional instruments of monetary policy (open-market operations, rediscount policy, control of banks' net indebtedness with the foreign sector, different ways of financing the Treasury, and so forth) are all means by which the central bank influences the amount of base money. As a matter of experience, however, the ratio of changes in the amount of credit to changes in the amount of monetary base or bank reserves