In New Keynesian as well as in Post Keynesian macroeconomic models, money supply is assumed to be endogenous. The reasons for the endogeneity and the role of the financial sector in the supply process, however, are seen very different. In this paper we explicitly derive the behaviour of the banking sector regarding the supply of loans and the demand for reserves from portfolio and liquidity considerations. As a result, the money multiplier as well as the money base are endogenously determined. Although the microeconomics of the bank behaviour is quite simple, credit and money as well as bonds demand depend on policy variables in a non-linear and non-monotonous way.
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Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics, Thueringer Universitaets- und Landesbibliothek in its series Jena Economic Research Papers in Economics with number
2008-065.
Find related papers by JEL classification: E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
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