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Monetary Disequilibrium in the Theory of Endogenous Money

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  • Jan Korda
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    Abstract

    The article deals with monetary disequilibrium in the theory of endogenous money. In new consensus economics, monetary disequilibrium is not considered whereas money is endogenous and passive. In post-Keynesian economics, there is an explicit discussion about reconciliation of money demand and supply. Based on careful distinction between money and credit markets, it is argued that monetary disequilibrium can occur even when money is endogenous and therefore money is endogenous and active. This is because of insufficiency of reflux mechanism. The article suggests ways in which new consensus should be supplemented to incorporate this issue. This is also important for monetary policy otherwise a part of transmission mechanism is left out.

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    Bibliographic Info

    Article provided by University of Economics, Prague in its journal Politická ekonomie.

    Volume (Year): 2011 (2011)
    Issue (Month): 5 ()
    Pages: 680-705

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    Handle: RePEc:prg:jnlpol:v:2011:y:2011:i:5:id:814:p:680-705

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    Related research

    Keywords: reflux mechanism; Post-Keynesian economics; new consensus economics; monetary disequilibrium; endogenous money;

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    References

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    1. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
    2. David H. Romer, 2000. "Keynesian Macroeconomics without the LM Curve," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 149-169, Spring.
    3. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    4. Peter Howells, 2009. "The Money Supply in Macroeconomics," Working Papers 0904, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
    5. Marc Lavoie, 2006. "A Post-Keynesian Amendment To The New Consensus On Monetary Policy," Metroeconomica, Wiley Blackwell, vol. 57(2), pages 165-192, 05.
    6. David Laidler, 1999. "Passive Money, Active Money, and Monetary Policy," Bank of Canada Review, Bank of Canada, vol. 1999(Summer), pages 15-25.
    7. Thomas I. Palley, 1991. "The Endogenous Money Supply: Consensus and Disagreement," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 13(3), pages 397-403, April.
    8. Arestis, Philip & Howells, Peter, 1996. "Theoretical Reflections on Endogenous Money: The Problem with 'Convenience Lending.'," Cambridge Journal of Economics, Oxford University Press, vol. 20(5), pages 539-51, September.
    9. Bennett T. McCallum, 2001. "Monetary Policy Analysis in Models Without Money," NBER Working Papers 8174, National Bureau of Economic Research, Inc.
    10. Rabin, Alan A, 1993. "Clarification of the Excess Demand for or Excess Supply of Money," Economic Inquiry, Western Economic Association International, vol. 31(3), pages 448-55, July.
    11. Laidler, David, 1984. "The 'Buffer Stock' Notion in Monetary Economics," Economic Journal, Royal Economic Society, vol. 94(376a), pages 17-34, Supplemen.
    12. Mark Setterfield, 2006. "Is inflation targeting compatible with Post Keynesian economics?," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 28(4), pages 653-671, July.
    13. Laurence H. Meyer, 2001. "Does money matter?," Review, Federal Reserve Bank of St. Louis, issue May, pages 1-16.
    14. Arestis, Philip & Howells, Peter, 1999. "The Supply of Credit Money and the Demand for Deposits: A Reply," Cambridge Journal of Economics, Oxford University Press, vol. 23(1), pages 115-19, January.
    15. Hewitson, Gillian, 1997. "The Post-Keynesian 'Demand for Credit' Model," Australian Economic Papers, Wiley Blackwell, vol. 36(68), pages 127-43, June.
    16. Cottrell, Allin, 1994. "Post-Keynesian Monetary Economics," Cambridge Journal of Economics, Oxford University Press, vol. 18(6), pages 587-605, December.
    17. Lavoie, Marc, 1999. "The Credit-Led Supply of Deposits and the Demand for Money: Kaldor's Reflux Mechanism as Previously Endorsed by Joan Robinson," Cambridge Journal of Economics, Oxford University Press, vol. 23(1), pages 103-13, January.
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