Endogenous Money, Non-neutrality and Interest-sensitivity in the Theory of Long Period Unemployment
AbstractThis paper investigates the role played by endogenous money in models with interest-sensitive expenditures. In particular, it examines the impact of endogenous money on a baseline neoclassical model arguing against the frequently asserted claim that traditional neoclassical macroeconomics is compatible with endogenous money. It demonstrates firstly that endogenous money is a sufficient condition to render unstable a neoclassical model characterised by interest-sensitive expenditures, full employment and money neutrality. Secondly, it shows that the introduction of either money illusion on the part of workers or a Taylor rule governing monetary policy are alternative methods of stabilising models with interest-sensitive expenditures and endogenous money, though with different implications for the full employment and neutrality characteristics of the standard model. Thirdly, it raises questions about whether models which incorporate Taylor rules can be properly characterised as containing endogenous money and it provides an alternative interpretation of such models. The paper concludes by arguing that money supply endogeneity of the extreme or accommodationist type is of fundamental significance for the construction of a theory of long period unemployment but it identifies a set of remaining questions which need to be addressed in the advancement of this project.
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 Finance Discipline Group, UTS Business School, University of Technology, Sydney in its series Working Paper Series with number 148.
Date of creation: 01 May 2006
Date of revision:
Contact details of provider:
Postal: PO Box 123, Broadway, NSW 2007, Australia
Phone: +61 2 9514 7777
Fax: +61 2 9514 7711
Web page: http://www.uts.edu.au/about/uts-business-school/finance
More information through EDIRC
endogenous money; money neutrality; unemployment; interest-sensitivity;
Find related papers by JEL classification:
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-02-10 (All new papers)
- NEP-CBA-2007-02-10 (Central Banking)
- NEP-MAC-2007-02-10 (Macroeconomics)
- NEP-MON-2007-02-10 (Monetary Economics)
- NEP-PKE-2007-02-10 (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.:
- Lavoie, M, 1995.
"Horizontalism, Structuralism, Liquidity Preference and the Principle of Increasing Risk,"
9513e, University of Ottawa, Department of Economics.
- Lavoie, Marc, 1996. "Horizontalism, Structuralism, Liquidity Preference and the Principle of Increasing Risk," Scottish Journal of Political Economy, Scottish Economic Society, vol. 43(3), pages 275-300, August.
- Cottrell, Allin, 1994. "Post-Keynesian Monetary Economics," Cambridge Journal of Economics, Oxford University Press, vol. 18(6), pages 587-605, December.
- Thomas I. Palley, 2000. "The Case for Positive Low Inflation: Some Financial Market Considerations with Special Attention to the Problems of Japan," Eastern Economic Journal, Eastern Economic Association, vol. 26(3), pages 277-295, Summer.
- Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988.
"Financing Constraints and Corporate Investment,"
Brookings Papers on Economic Activity,
Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
- Milgate, Murray, 1977. "Keynes on the 'Classical' Theory of Interest," Cambridge Journal of Economics, Oxford University Press, vol. 1(3), pages 307-15, September.
- Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
- Harcourt, G C, 1969.
"Some Cambridge Controversies in the Theory of Capital,"
Journal of Economic Literature,
American Economic Association, vol. 7(2), pages 369-405, June.
- Harcourt,G. C., 1972. "Some Cambridge Controversies in the Theory of Capital," Cambridge Books, Cambridge University Press, number 9780521096720, November.
- Garegnani, Pierangelo, 1979.
"Notes on Consumption, Investment and Effective Demand: II,"
Cambridge Journal of Economics,
Oxford University Press, vol. 3(1), pages 63-82, March.
- Garegnani, Pierangelo, 1978. "Notes on Consumption, Investment and Effective Demand: I," Cambridge Journal of Economics, Oxford University Press, vol. 2(4), pages 335-53, December.
- Garegnani, Pierangelo, 1984. "Value and Distribution in the Classical Economists and Marx," Oxford Economic Papers, Oxford University Press, vol. 36(2), pages 291-325, June.
- McCallum, Bennett T., 1986.
"Some issues concerning interest rate pegging, price level determinacy, and the real bills doctrine,"
Journal of Monetary Economics,
Elsevier, vol. 17(1), pages 135-160, January.
- Bennett T. McCallum, 1986. "Some Issues Concerning Interest Rate Pegging, Price Level Determinacy, and the Real Bills Doctrine," NBER Working Papers 1294, National Bureau of Economic Research, Inc.
- Peter Docherty, 2008. "Money and Monetary Policy in a Kaldor-Pasinetti-Sraffa-Keynes Framework," Working Paper Series 153, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Duncan Ford).
If references are entirely missing, you can add them using this form.