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Is a Plumber or a New Financial Architect Needed to End global International Liquidity Problems?

In: Interpreting Keynes for the 21st Century

Author

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  • Paul Davidson

Abstract

How one interprets volatility in the international financial markets and therefore chooses a policy stance regarding these markets depend on the underlying economic theory that one explicitly, or implicitly, utilizes to explain the role of financial markets in a market-oriented entrepreneurial economy. There are two major alternative theories of financial markets: (1) the classical efficient market theory (hereafter EMT) and (2) Keynes’s liquidity preference theory (hereafter LPT). Each produces a different set of policy prescriptions. EMT advocates call for a liquidity plumber to patch up some short-run stresses in today’s efficient international financial flow system. LPT proponents believe that the current system is structurally flawed. Consequently, it will require an architect to build a new international financial structure on more solid foundations.

Suggested Citation

  • Paul Davidson, 2007. "Is a Plumber or a New Financial Architect Needed to End global International Liquidity Problems?," Palgrave Macmillan Books, in: Interpreting Keynes for the 21st Century, chapter 1, pages 3-27, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-28655-9_1
    DOI: 10.1057/9780230286559_1
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    Cited by:

    1. Sam Levey, 2021. "Modeling Monopoly Money: Government as the Source of the Price Level and Unemployment," Economics Working Paper Archive wp_992, Levy Economics Institute.
    2. Robin Pope, 2009. "Beggar‐Thy‐Neighbour Exchange Rate Regime Misadvice from Misapplications of Mundell (1961) and the Remedy," The World Economy, Wiley Blackwell, vol. 32(2), pages 326-350, February.

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