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Edited by Jan Toporowski and Jo Michell
Chapter 6: Central bank policy
Radical political economy analysis claims the centrality of money and credit markets in capitalism. More importantly, in this theoretical tradition, money has real effects on capital accumulation in the long run and the interaction of the monetary and financial relations with the real economy shapes the path of economic development. The latter can be mainly seen through the literature on finance and development that is connected to the existence of bank-based financial systems in continental Europe and Japan, and to market-based financial systems in Britain and the United States. Therefore, monetary and credit markets have significant importance for the modern capitalist economy as well the institutional context in which those markets take place. In particular, money markets are crucial to the setting of the financial conditions to credit markets since they define the basic interest rate in any economy. On the opposite side to this view on money and finance, there is the neoclassical or orthodoxy tradition in which money has no effects on capital accumulation in the long run (Friedman, 1956, 1970), and more recently the issues related to monetary and financial spheres have been understood in terms of asymmetrical information problems.
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