Arbeitspapier

Further insights on endogenous money and the liquidity preference theory of interest

We present a simple stock-ow consistent (SFC) model to discuss some recent claims made by Angel Asensio in the Journal of Post Keynesian Economics regarding the relationship between endogenous money theory and the liquidity preference theory of the rate of interest. We incorporate Asensio's assumptions as far as possible and use simulation experiments to investigate his arguments regarding the presence of a crowding-out effect, the relationship between interest rates and credit demand, and the ability of the central bank to steer interest rates through varying the stock of money. We show that in a fully-specified SFC model, some of Asensio's conclusions are not generally valid (most importantly, the presence of a crowding-out effect is ambiguous), and that in any case, his use of a non-SFC framework leads him to ignore important mechanisms which can contribute to a better understanding of the behaviour of interest rates. More generally, this paper hence once more demonstrates the utility of the SFC approach in research on monetary economics 1930s.

Language
Englisch

Bibliographic citation
Series: FMM Working Paper ; No. 17

Classification
Wirtschaft
General Aggregative Models: Keynes; Keynesian; Post-Keynesian
Money and Interest Rates: General
Interest Rates: Determination, Term Structure, and Effects
Subject
Horizontalism
structuralism
endogenous money
interest rates
stock-flow consistency

Event
Geistige Schöpfung
(who)
Lavoie, Marc
Reissl, Severin
Event
Veröffentlichung
(who)
Hans-Böckler-Stiftung, Macroeconomic Policy Institute (IMK), Forum for Macroeconomics and Macroeconomic Policies (FMM)
(where)
Düsseldorf
(when)
2018

Handle
Last update
10.03.2025, 11:44 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Lavoie, Marc
  • Reissl, Severin
  • Hans-Böckler-Stiftung, Macroeconomic Policy Institute (IMK), Forum for Macroeconomics and Macroeconomic Policies (FMM)

Time of origin

  • 2018

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