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Endogenous Money in a Coherent Stock-Flow Framework

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  • Marc Lavoie

    (University of Ottawa)

Abstract

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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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0103007.

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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
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Web page: http://128.118.178.162

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  1. Wynne Godley, 1999. "Seven Unsustainable Processes: Medium-Term Prospects and Policies for the United States and the World," Economics Strategic Analysis Archive 99-10, Levy Economics Institute.
  2. Backus, David, et al, 1980. "A Model of U.S. Financial and Nonfinancial Economic Behavior," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(2), pages 259-93, Special I.
  3. Giancarlo Bertocco, 2001. "Is Kaldor's Theory of Money Supply Endogeneity Still Relevant?," Metroeconomica, Wiley Blackwell, vol. 52(1), pages 95-120, 02.
  4. Marc Lavoie & Wynne Godley, 2000. "Kaleckian Models of Growth in a Stock-Flow Monetary Framework: A Neo-Kaldorian Model," Macroeconomics 0004049, EconWPA.
  5. L. Randall Wray, 1998. "Modern Money," Economics Working Paper Archive wp_252, Levy Economics Institute.
  6. Charles Goodhart, 1989. "Has Moore Become too Horizontal?," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 12(1), pages 29-34, October.
  7. Godley, Wynne, 1999. "Money and Credit in a Keynesian Model of Income Determination," Cambridge Journal of Economics, Oxford University Press, vol. 23(4), pages 393-411, July.
  8. Sheila C Dow, 1994. "Endogenous Money," Working Papers Series 94/12, University of Stirling, Division of Economics.
  9. 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.
  10. Martin H. Wolfson, 1996. "A Post Keynesian Theory of Credit Rationing," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 18(3), pages 443-470, April.
  11. James Tobin, 1982. "Money and Finance in the Macro-Economic Process," Cowles Foundation Discussion Papers 613R, Cowles Foundation for Research in Economics, Yale University.
  12. Hicks, John, 1989. "A Market Theory of Money," OUP Catalogue, Oxford University Press, number 9780198287247, September.
  13. Jamee K. Moudud, 1999. "Finance in a Classical and Harrodian Cyclical Growth Model," Economics Working Paper Archive wp_290, Levy Economics Institute.
  14. Wynne Godley, 1996. "Money, Finance and National Income Determination: An Integrated Approach," Economics Working Paper Archive wp_167, Levy Economics Institute.
  15. Peter G. A. Howells, 1995. "The Demand for Endogenous Money," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 18(1), pages 89-106, October.
  16. Wray, L Randall, 1992. "Alternative Theories of the Rate of Interest," Cambridge Journal of Economics, Oxford University Press, vol. 16(1), pages 69-89, March.
  17. Peter G. A. Howells, 1997. "The Demand for Endogenous Money: A Rejoinder," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 19(3), pages 429-435, April.
  18. Davidson, Paul, 1972. "Money and the Real World," Economic Journal, Royal Economic Society, vol. 82(325), pages 101-15, March.
  19. David H. Romer, 2000. "Keynesian Macroeconomics without the LM Curve," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 149-169, Spring.
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  21. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
  22. 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.
  23. Basil J. Moore, 1997. "Reconciliation of the Supply and Demand for Endogenous Money," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 19(3), pages 423-428, April.
  24. John F. Henry & L. Randall Wray, 1998. "Economic Time," Economics Working Paper Archive wp_255, Levy Economics Institute.
  25. Victoria Chick, 1983. "Macroeconomics after Keynes: A Reconsideration of the General Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262530457, December.
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Cited by:
  1. Claudio Dos Santos & Gennaro Zezza, 2004. "A Post-Keynesian Stock-Flow Consistent Macroeconomic Growth," Macroeconomics 0402027, EconWPA.
  2. Alex Izurieta, 2001. "Can Countries under A Common Currency Conduct Their Own Fiscal Policies?," Macroeconomics 0108008, EconWPA.

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