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A Post Keynesian Perspective on Twenty-First Century Economic Problems

Edited by Paul Davidson

This book explores key economic problems and new policies for the global economy of the 21st century. The contributors discuss to what extent past policy errors were due to the incompetence of policymakers, and highlight problems including: international payments imbalances and currency crises, volatile security markets, inflation, achieving full employment, income distribution and alleviating individuals and nations of poverty.
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Chapter 6: Banks' liquidity preference and financial provision

Penelope Hawkins


6. Banks’ liquidity preference and financial provision Penelope Hawkins* INTRODUCTION This chapter explores the liquidity preference of banks as an explanation for differential financial provision to borrowers. While some borrowers may have first call on a bank’s resources, others are unable to obtain credit, and hence are constrained by financial exclusion. Still others may remain on the fringe, with capricious access to credit leaving them financially vulnerable. The paper suggests that liquidity preference presents a possible conceptual framework within which to develop a model of banks’ distributive behavior toward different types of borrowers within the framework of an endogenous money supply. The spectrum of financial provision presented below may also provide insight into the transmission of monetary policy. The spectrum of financial exclusion may be seen against the background of an endogenous money supply where the banks seek profits through actively managing their balance sheets, as guided by their preference for liquidity. This approach, which may be termed the conditionally endogenous approach to the money supply, is associated with the work of Minsky (1982), Chick (1983), Dow (1993, 1996), Dow and Dow (1989) and Carvalho (1992, 1999) and contrasts with the passive accommodation attributed to the banking sector by the horizontalists. The spectrum of financial provision suggests that at one extreme will be those who are excluded from financial provision. To be financially excluded means to be denied access to command over liquidity. In a monetary economy, with a developed banking sector, this can mean exclusion from...

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