Eichengreen, Barry and Donald Mathieson (2000),“The Currency Composition of Foreign Exchange Reserves: Retrospect and Prospect,” IMF Working Paper No. 00/131. Lane, Philip R. and Gian Maria Milesi-Ferretti (2008), “The Drivers of Financial Globalization,” American Economic Review (Papers and Proceedings) 98(2), 327–33. Lane, Philip R. and Jay C. Shambaugh (2010), “Financial Exchange Rates and International Currency Exposures,” American Economic Review 100(1), 518 – 540.
Because velocity has a tendency to fall in tandem with the multiplier, in episodes of financial dislocation the central bank has one more reason to increase base money in order to keep nominal income from falling. This is in essence what we did over the first two phases of the crisis.