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Edited by Louis-Philippe Rochon and Sergio Rossi

Endogenous money constitutes the cornerstone of post-Keynesian monetary theory, which underlines that the supply of money is determined by the demand for means of payment. An effective presentation of this theory has been proposed by Moore ( 1988 ), who differentiates between horizontalists and verticalists. The mainstream theory reflects the verticalist view and states that the money supply function is exogenous, independent from money demand and controlled by the central bank. By contrast, according to endogenous money theory, which reflects the horizontalist

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Basil Moore

Endogenous money 117 Blanchard, O.J. and L.H. Summers (1986), ‘Hysteresis and the European unemployment problem’, NBER Macroeconomics Annual, 1, 15–78. Hudson, J. (1999), ‘A generalized theory of output determination’, Journal of Post Keynesian Economics, 21 (4), 663–78. Mankiw, N.G. (1985), ‘Small menu costs and large business cycles: a macroeconomic model of monopoly’, Quarterly Journal of Economics, 100 (2), 529–37. McDonald, I.M. and R.M. Solow (1981), ‘Wage bargaining and employment’, American Economic Review, 71 (5), 896–908. Solow, R.M. (1979), ‘Another

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Steve Keen

1 INTRODUCTION The ideas which are here expressed so laboriously are extremely simple and should be obvious. The difficulty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds. ( Keynes 1936 , p. xxiii) The concept of endogenous money has been integral to post-Keynesian economics ever since the pioneering empirical work of Basil Moore ( Moore 1979 ; 1983 ; 1988a ; 1988b ; 1995 ; 1997 ; 2001 ; 2006 ), and it is fundamental to Minsky's Financial Instability

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Edited by Louis-Philippe Rochon and Sergio Rossi

The endogenous nature of money is a fact that has been recognized rather late in monetary economics. Today, it is explained most comprehensively by the theory of money in post-Keynesian monetary theory. The expert contributors to this enlightening book revisit long-standing debates on the endogeneity of money from the position of both horizontalists and structuralists, and prescribe new areas of research and debate for post-Keynesian scholars to explore.
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Malcolm Sawyer

1 INTRODUCTION It is generally recognized in post-Keynesian circles that money is credit money created through the loan processes of the banking system (‘endogenous money’). This observation places banks centre-stage with regard to the expansion of economic activity. The loan–credit money creation has also been generally, but not universally, associated with investment expenditure as resulting from the loans. As Kalecki observed, ‘the possibility of stimulating the business upswing is based on the assumption that the banking system, especially the central bank

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John Smithin

12. Interest rate determination and endogenous money John Smithin INTRODUCTION As I have argued on a number of occasions (see, for example, Smithin, 2016a, pp. 65–6), one of the main collective contributions1 of the various heterodox schools of monetary thought – such as circuit theory, postKeynesian theory in both its horizontalist and structuralist versions, modern money theory (MMT) and others – has been to stress the importance of the endogeneity of money via bank credit creation. This issue was hardly discussed at all in the economics mainstream after Keynes

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Louis-Philippe Rochon and Sergio Rossi

Introduction: the need to discuss endogenous money again Louis-Philippe Rochon and Sergio Rossi The notions of credit and money, and how they interact with the real economy, have preoccupied heterodox economists for several decades, and even dominated the heterodox discourse for most of the 1980s and 1990s, with the so-called horizontalist–structuralist debates. However, we can trace the origins of the post-Keynesian theory of endogenous money to much earlier, to the work of Robinson (1956), Kaldor (1970), Moore (1979) and Eichner (1987) (see Rochon, 1999 and

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Louis-Philippe Rochon and Sergio Rossi

a number of Sraffians, Institutionalists and Marxian scholars – the existence of money is paramount in economic analysis. As a matter of fact, it is impossible to study economics, in particular macroeconomics, without first understanding the conception of money, its logical origin and creation, and how money is linked to production and income. For this second group of economists, the supply of money is endogenous, because it is determined by the agents' demand to pay for the costs of production. As such, money is the means of payment that is required to settle any

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Thomas I. Palley

1 INTRODUCTION 2013 marks the 25th anniversary of Basil Moore's (1988) book Horizontalists and Verticalists: the Macroeconomics of Credit Money . The book has made an important contribution to post-Keynesian monetary theory by consolidating and elaborating the line of thought pioneered by Nicholas Kaldor ( 1970 ; 1982 ) in his critique of monetarism. However, this paper argues Moore's elaboration of the theory of endogenous money was overly simplistic in its distinction between horizontalists and verticalists and it also discarded important enduring insights

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Christopher J. Niggle

11. An evolutionary–institutionalist reappraisal of the endogenousmoney-supply theory Christopher J. Niggle INTRODUCTION The horizontalist–structuralist debates centred on the primary explanation as to why the money supply should be understood as endogenous to the economy – determined by the demand for money and credit within the economy – rather than exogenous, meaning determined by a factor external to the economy itself, such as central-bank policy. The endogenous-money-supply theory argues that central banks cannot control the money supply. The primary