Arbeitspapier

Liquidity, insolvency and the state

The importance of liquidity and insolvency for nation states and banks has been highlighted by current economic woes in the eurozone and elsewhere. The concepts are grounded in monetary theory, which determine the way they are interpreted. Connected to the discussion of autometallism and Chartalism in the early 20th century, monetary economists of today have come full circle. Discussing some modern authors, it is argued that the concepts of liquidity and insolvency are connected. However, if the central bank functions as lender of last resort the link is cut. Also, fiscal policy has the potential to remove problems of illiquidity and insolvency in the financial system. Illiquidity and insolvency are signals of stress in the real economy. Their oppression through central bank policy might lead to the (wrong) perception that all is well in the economy.

Language
Englisch

Bibliographic citation
Series: Working Paper ; No. 74/2016

Classification
Wirtschaft
Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Subject
monetary policy
fiscal policy
balance sheets
autometallism
Chartalism

Event
Geistige Schöpfung
(who)
Ehnts, Dirk H.
Event
Veröffentlichung
(who)
Hochschule für Wirtschaft und Recht Berlin, Institute for International Political Economy (IPE)
(where)
Berlin
(when)
2016

Handle
Last update
10.03.2025, 11:42 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Ehnts, Dirk H.
  • Hochschule für Wirtschaft und Recht Berlin, Institute for International Political Economy (IPE)

Time of origin

  • 2016

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