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June/July 1980

Eurodollars and the U.S. Monetary Supply

by Anatol Balbach and David H. Resler

This article addresses the relationship between the eurodollar market and monetary control. It assumes throughout that the Federal Reserve System does not engage in eurodollar transactions or alter its monetary policy as a result of such transactions. The first section of the article describes the eurodollar market. The second section illustrates, through the use of balance sheets, how eurodollar transactions may affect the U.S. money supply. The third section investigates the effects of eurodollar transactions on the U.S. money supply in the context of a money multiplier model.