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Implications arising from the theory on the Treasury's bank reserve effects

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  • William Van Lear

Abstract

This paper considers the issue of state budgetary effects on bank reserves and revisits the issue of central bank interaction with the Treasury. The neoclassical or orthodox economics perspective on Treasury-Federal Reserve relations dominates public policy. Heterodox economics has produced some insightful, innovative contributions to the understanding of state finance and monetary policy that improve upon the conventional view. In particular, Stephanie Bell (2000) and Randall Wray (1998) enrich the theory of state-central bank relations by stressing the importance of the institutional details of central bank and Treasury operations on bank reserves, interest rates, and the money supply. This paper describes the orthodox and heterodox perspectives, and then fleshes out some important implications for monetary control and public policy to which these two views may lead.

Suggested Citation

  • William Van Lear, 2002. "Implications arising from the theory on the Treasury's bank reserve effects," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 25(2), pages 251-261.
    • Handle: RePEc:mes:postke:v:25:y:2002:i:2:p:251-261
    DOI: 10.1080/01603477.2002.11051358
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