A simple model of income, aggregate demand and the process of credit creation by private banks
This paper presents a small macroeconomic model describing the main mechanisms of the process of creation by the private banking system. The model is composed of a core unit—where the dynamics of income, credit and aggregate demand are determined—and a set of sectoral accounts that ensure its stock-flow consistency. In order to grasp the role of credit and banks on the functioning of the economic system we make an explicit distinction between planned and realized variables, thanks to which, while maintaining the ex-post accounting consistency, we are able to introduce an ex-ante wedge between current aggregate income and planned expenditure. Private banks are the only economic agents capable of filling this gap through the creation of new credit. Through the use of numerical simulation we discuss the link between credit creation and the expansion of economic activity, also contributing to a recent academic debate on the relation between income, debt and aggregate demand. Copyright Springer Science+Business Media New York 2014
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
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.:
- David H. Romer, 2000.
"Keynesian Macroeconomics without the LM Curve,"
Journal of Economic Perspectives,
American Economic Association, vol. 14(2), pages 149-169, Spring.
- F. Brayton & P. Tinsley, 1996. "A guide to FRB/US: a macroeconomic model of the United States," Finance and Economics Discussion Series 96-42, Board of Governors of the Federal Reserve System (U.S.).
- Mathias Binswanger, 2009. "Is there a growth imperative in capitalist economies? a circular flow perspective," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 31(4), pages 707-727, July.
- Eugenio Caverzasi & Antoine Godin, 2013. "Stock-flow Consistent Modeling through the Ages," Economics Working Paper Archive wp_745, Levy Economics Institute.
- Dieppe, Alistair & González Pandiella, Alberto & Willman, Alpo, 2011.
"The ECB's New Multi-Country Model for the euro area: NMCM - simulated with rational expectations,"
Working Paper Series
1315, European Central Bank.
- Dieppe, Alistair & González Pandiella, Alberto & Willman, Alpo, 2012. "The ECB's New Multi-Country Model for the euro area: NMCM — Simulated with rational expectations," Economic Modelling, Elsevier, vol. 29(6), pages 2597-2614.
- Bezemer, Dirk, 2009. "No one saw this coming. Understanding financial crisis through accounting models," Research Report 09002, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
When requesting a correction, please mention this item's handle: RePEc:kap:empiri:v:41:y:2014:i:3:p:381-405. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.