Endogenous Money : Implications For The Money Supply Process, Interest Rates, And Macroeconomics Abstract

1389 WordsSep 7, 20146 Pages
Endogenous Money: Implications for the Money Supply Process, Interest Rates, and Macroeconomics Abstract Endogenous money represents a mainstay of Post Keynesian (PK) macroeconomics. PK theory challenged monetarism’s description of the money supply process. The focus of PK endogenous money theory is the mechanics of the money supply process. PK theory is itself divided between “horizontalist” and “structuralist” approaches to the money supply. Horizontalists believe the behavior of financial institutions is unconstrained by the availability of liquidity (reserves) provided by the central bank and the supply-price of finance to banks is fixed at a price set by the central bank. The important difference is that structuralists emphasize the role of bank lending in determining the money supply. Structuralists believe liquidity pressures matter and the supply price of finance to banks can increase endogenously. Endogenous money represents a mainstay of Post Keynesian (PK) macroeconomics, and the PK theory of endogenous money constitutes a significant contribution to macroeconomic theory. PK endogenous money theory emphasizes that this linkage runs predominantly from credit to money to economic activity. This contrasts with conventional representations that place money first, as reflected in the standard textbook money multiplier story in which bank deposits are said to create loans. II Against monetarism: the origins of PK endogenous money theory The cornerstone of
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