A Handbook of Alternative Monetary Economics
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A Handbook of Alternative Monetary Economics

Edited by Philip Arestis and Malcolm Sawyer

This major Handbook consists of 29 contributions that explore the full range of exciting and interesting work on money and finance currently taking place within heterodox economics. There are many themes and facets of alternative monetary and financial economics but two major ones can be identified.
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Chapter 3: Endogenous Money: Structuralist

Sheila C. Dow


Sheila C. Dow* 1. Introduction It is now a widely held view that the money supply is not under the full control of the monetary authorities, that is, that it is (at least in part) endogenous to real private sector economic processes. This has long been the view of those who study the actual workings of banking systems. But the inability of the authorities to control the money supply became most evident during the 1980s when attempts were made at such control in the name of monetarist theory. The practice of monetary policy now, in the USA, the UK and the Euro-zone, is therefore explicitly focused on setting the rate charged on borrowed reserves (in the form of the repo rate1) rather than targeting a particular rate of growth of the money supply. It is therefore now increasingly (though by no means universally) accepted that the money supply should be treated as an endogenous variable in monetary theory. This is the case across a wide spectrum of modern theoretical approaches, including the neoclassical theory of monetary policy (as in Goodhart, 1984) and new classical business cycle theory (as in McCallum, 1986), as well as, more traditionally, in the post-Keynesian approach. The view that the money supply is endogenous has a long pedigree,2 which, contrary to popular belief, includes Keynes (Moore, 1988; Dow, 1997a). The literature is rich, reflecting the several senses in which the money supply may be seen to be endogenous (Rousseas, 1986: chs 4 and 5)...

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