Advances in Endogenous Money Analysis
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Advances in Endogenous Money Analysis

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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Chapter 12: Interest rate determination and endogenous money

John Smithin


The debate between the horizontalist and structuralist wings of the post-Keynesian school was about the need to reconcile the notions of endogenous money, central-bank interest-rate operating procedures, and the intuitive idea, from Keynes, that liquidity preference also matters for the determination of interest rates. This chapter argues that all of these things are entirely compatible. However, it is important to recognize that the most important point at issue is about the determination of real interest rates, not just nominal interest rates. If the central bank can target the real policy rate of interest, then it will certainly also have much influence over the real interest rates actually paid by borrowers, including firms making investments.

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