Endogenous Money: Structuralist and Horizontalist
AbstractWhile the mainstream long argued that the central bank could use quantitative constraints as a means to controlling the private creation of money, most economists now recognize that the central bank can only set the overnight interest rate-which has only an indirect impact on the quantity of reserves and the quantity of privately created money. Indeed, in order to hit the overnight rate target, the central bank must accommodate the demand for reserves, draining the excess or supplying reserves when the system is short. Thus, the supply of reserves is best characterized as horizontal, at the central bank's target rate. Because reserves pay relatively low rates, or even zero rates (as in the United States), banks try to minimize their holdings. Over time, they continually innovate, as they seek to minimize costs and increase profits. This includes innovations that reduce the quantity of reserves they need to hold (either to satisfy legal requirements, or to meet the needs of check cashing and clearing), and also innovations that allow them to increase the rate of return on equity within regulatory constraints, such as those associated with Basle agreements. Such behavior has been a central concern of the structuralist approach-which argued that it is too simplistic to hypothesize simple horizontal loan-and-deposit supply curves.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Levy Economics Institute, The in its series Economics Working Paper Archive with number wp_512.
Date of creation: Sep 2007
Date of revision:
Contact details of provider:
Web page: http://www.levyinstitute.org
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-09-09 (All new papers)
- NEP-CBA-2007-09-09 (Central Banking)
- NEP-MAC-2007-09-09 (Macroeconomics)
- NEP-MON-2007-09-09 (Monetary Economics)
- NEP-PKE-2007-09-09 (Post Keynesian Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Stephanie Bell & L. Randall Wray, 2002. "Fiscal effects on reserves and the independence of the Fed," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 25(2), pages 263-271, December.
- Dimitri B. Papadimitriou & L. Randall Wray, 1999.
"Minsky's Analysis of Financial Capitalism,"
Economics Working Paper Archive
wp_275, Levy Economics Institute, The.
- Ann-Marie Meulendyke, 1988. "Can the Federal Reserve Influence Whether the Money Supply Is Endogenous? A Comment on Moore," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 10(3), pages 390-397, April.
- Robert Pollin, 1991. "Two Theories of Money Supply Endogeneity: Some Empirical Evidence," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 13(3), pages 366-396, April.
- Cooley, Thomas F & LeRoy, Stephen F, 1981. "Identification and Estimation of Money Demand," American Economic Review, American Economic Association, vol. 71(5), pages 825-44, December.
- Perry Mehrling, 2000. "Modern Money: Fiat or Credit?," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 22(3), pages 397-406, April.
- 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.
- Mario García Molina, 2011. "Esquema Para El Analisis De La Estructura De Un Grupo Económico," DOCUMENTOS DE TRABAJO - ESCUELA DE ECONOMÃA 007957, UN - RCE - CID.
- Piti Disyatat, 2011.
"The Bank Lending Channel Revisited,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 43(4), pages 711-734, 06.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marie-Celeste Edwards).
If references are entirely missing, you can add them using this form.