Critical Assessments of The General Theory
Edited by L. Randall Wray and Matthew Forstater
Chapter 18: Monetary and Fiscal Policies in a Post Keynesian Stock-flow Consistent Model
18. Monetary and ﬁscal policies in a Post Keynesian stock–ﬂow consistent model* Edwin Le Heron LIQUIDITY PREFERENCE AND ENDOGENOUS MONEY: A RECONCILIATION The theoretical approach of this chapter seems unrealistic, nevertheless, we shall attempt to reconcile in a model: (i) the liquidity preference theory with its endogenous interest rate (Keynes, 1936 : ch. 13; 1937), which focuses on the money stock and (ii) the endogenous money of eﬀective demand with an exogenous interest rate (Keynes, 1936 : ch. 3; and the horizontalist approach of Kaldor, 1985 and Moore, 1988), which focuses on the money ﬂow. Our solution generalizes the liquidity preference theory to the commercial bank sector, distinguishes the determination of the short- and the long-run interest rate, and analyzes the dynamic of ﬂows and stocks in a Post Keynesian model. In Keynes’s General Theory and in the IS–LM model, the ‘monetary authorities’ should resolve all the problems regarding the creation and control of money. The banking system is analyzed solely in terms of central bank activities: the supply of money is ﬁxed exogenously by the central bank. An endogenous theory of the demand for money coexists with an endogenous theory of the interest rate (liquidity preference). But many Post Keynesians prefer to think of an endogenous money supply, determined by the demand for funds in the banking sector. They then use an exogenous theory of the short-term interest rate ﬁxed by the monetary policy. This ‘horizontalist’ approach views banks as intermediaries between the central bank, which...
You are not authenticated to view the full text of this chapter or article.
Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.
Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.
Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.