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Credit supply, credit demand and unemployment in the mode of Augusto Graziani

Guglielmo Forges Davanzati

Keywords: endogenous money; bank credit; labour market

Evidence shows that, in most European countries, both credit restriction on the part of banks and reduction of the demand for credit on the part of firms are in operation. This is particularly intense in Italy. The aim of this paper is to show that both phenomena ultimately depend on the decline of aggregate demand, insofar as it negatively affects firms’ current and expected profits. A macroeconomic schema is presented, based on Graziani's view that the operation of the credit market can trigger economic crises. Keynesian and Institutional arguments are also considered in order to analyse the links existing between the dynamics of the credit market and the path of wages and employment.

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