A method advocated by Wynne Godley to model monetary macroeconomics, is presented. The method, based on a transactions matrix, essentially makes sure that every flow goes somewhere and comes from somewhere, so that there are no black holes. The method is put to use for several purposes: to illustrate the monetary circuit of credit money; to demonstrate that there can be a separate portfolio (stock) demand for money, but not one independent from the rest of the model; to show that there cannot be an excess supply of credit; to handle the cases of credit for speculation purposes and high liquidity preference; to underline that endogenous money at fixed interest rates is still compatible with any government deficit; and to show that even when banks have liquidity norms, larger amounts of loans do not necessarily induce higher interest rates. Briefly stated, the paper shows that many of the claims made by Horizontalist authors are confirmed when a fully coherent accounting framework is put in place to assess their claims.
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Paper provided by EconWPA in its series Macroeconomics with number
0103007.
Length: 32 pages Date of creation: 27 Mar 2001 Date of revision: Handle: RePEc:wpa:wuwpma:0103007
Note: Type of Document - Adobe Acrobat PDF; prepared on IBM PC; to print on PostScript; pages: 32; figures: included Contact details of provider: Web page: http://129.3.20.41
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