If the money multiplier is not a useful concept any more, how are we going to understand and model broad money growth?  In their recent paper, Frank Decker and Charles Goodhart tell us where to start:  ‘credit mechanics.’  The originators and contributors to this concept within the twentieth century are reminded in their paper:

Decker, F and C A Goodhart (2018), “Credit Mechanics – A Precursor to the Current Money Supply Debate”, CEPR Discussion Paper 13233.

My favourite part of their blog entry on this issue is:

Earlier it was based on the money multiplier, which implied that the money stock was driven primarily by changes to the central bank’s monetary base. This ignored the fact that, if the central bank wanted to fix a short-term interest rate – which it generally did – then the base had to adjust to commercial banks’ need for base money, rather than the reverse. Subsequently the divorce between the recent explosion in bank balances at the central bank and the sluggish growth in the broader money stock has scuppered the money multiplier approach. But this void is being filled by yet another partial equilibrium analysis, whereby the emphasis is focused entirely on the, supposedly unilateral, ability of the individual bank to create loans, and money, ex nihilo. In contrast, we argue that a more general approach to money supply theory involving credit mechanics and the influence of all those participating, bank debtors and creditors, both the non-bank private and the public sector, needs to be established.”

Decker, Frank and Charles A. Goodhart (2018), “Credit Mechanics – A Precursor to the Current Money Supply Debate”,  Blog entry on VOX CEPR Policy Portal, 14 Dec 2018,

https://voxeu.org/article/credit-mechanics-precursor-current-money-supply-debate

This suggested route may sound too complicated, especially for building a simple textbook model.  But unless we take it, there is no other chance of developing a really useful one.