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Credit Money, Collateral and the Solvency of Banks: A Post Keynesian Analysis of Credit Market Failures

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  • Paul Ramskogler

Abstract

The discussion on endogenous money has led to a rich understanding of banking. The determination of creditworthiness though remains a black box in Post Keynesian economics. After a critique of the New Keynesian banking literature this paper argues that creditworthiness to a large extent is endogenous to the monetary economy and the credit system. It is argued that a solvency multiplier exists that affects the willingness of banks to grant credit. The multiplier works via the valuation of collateral goods. It can accelerate the growth but also the contraction of credit and explains both endogenous financial crises and credit rationing.

Suggested Citation

  • Paul Ramskogler, 2011. "Credit Money, Collateral and the Solvency of Banks: A Post Keynesian Analysis of Credit Market Failures," Review of Political Economy, Taylor & Francis Journals, vol. 23(1), pages 69-79.
    • Handle: RePEc:taf:revpoe:v:23:y:2011:i:1:p:69-79
    DOI: 10.1080/09538259.2011.526294
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    References listed on IDEAS

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    1. Mitchell A. Petersen & Raghuram G. Rajan, 1995. "The Effect of Credit Market Competition on Lending Relationships," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(2), pages 407-443.
    2. Louis-Philippe Rochon, 1999. "Credit, Money and Production," Books, Edward Elgar Publishing, number 1565, March.
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    Cited by:

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    2. Forges Davanzati, Guglielmo & Pacella, Andrea, 2013. "The profits-investments puzzle: A Post Keynesian-Institutional interpretation," Structural Change and Economic Dynamics, Elsevier, vol. 26(C), pages 1-13.

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