Endogenous Money: Structuralist and Horizontalist
While the mainstream long argued that the central bank could use quantitative constraints as a means to controlling the private creation of money, most economists now recognize that the central bank can only set the overnight interest rate-which has only an indirect impact on the quantity of reserves and the quantity of privately created money. Indeed, in order to hit the overnight rate target, the central bank must accommodate the demand for reserves, draining the excess or supplying reserves when the system is short. Thus, the supply of reserves is best characterized as horizontal, at the central bank's target rate. Because reserves pay relatively low rates, or even zero rates (as in the United States), banks try to minimize their holdings. Over time, they continually innovate, as they seek to minimize costs and increase profits. This includes innovations that reduce the quantity of reserves they need to hold (either to satisfy legal requirements, or to meet the needs of check cashing and clearing), and also innovations that allow them to increase the rate of return on equity within regulatory constraints, such as those associated with Basle agreements. Such behavior has been a central concern of the structuralist approach-which argued that it is too simplistic to hypothesize simple horizontal loan-and-deposit supply curves.
References listed on IDEAS
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.:
- Robert Pollin, 1991. "Two Theories of Money Supply Endogeneity: Some Empirical Evidence," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 13(3), pages 366-396, March.
- Stephanie Bell & L. Randall Wray, 2002. "Fiscal effects on reserves and the independence of the Fed," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 25(2), pages 263-271.
- Perry Mehrling, 2000. "Modern Money: Fiat or Credit?," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 22(3), pages 397-406, March.
- Cooley, Thomas F & LeRoy, Stephen F, 1981. "Identification and Estimation of Money Demand," American Economic Review, American Economic Association, vol. 71(5), pages 825-844, December.
- Ann-Marie Meulendyke, 1988. "Can the Federal Reserve Influence Whether the Money Supply Is Endogenous? A Comment on Moore," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 10(3), pages 390-397, March.
- Marc Lavoie & Mario Seccareccia, 2001.
"Minsky's financial fragility hypothesis: a missing macroeconomic link?,"
Chapters,in: Financial Fragility and Investment in the Capitalist Economy, chapter 4
Edward Elgar Publishing.
- Lavoie, M. & Seccareccia, M., 1999. "Minsky's Financial Fragility Hypothesis: a Missing Macroeconomic Link?," Working Papers 9904e, University of Ottawa, Department of Economics.
- Dimitri B. Papadimitriou & L. Randall Wray, 2001. "Minsky's analysis of financial capitalism," Chapters,in: Financial Keynesianism and Market Instability, chapter 7 Edward Elgar Publishing.
- Fan-Hung, 1939. "Keynes and Marx on the Theory of Capital Accumulation, Money and Interest," Review of Economic Studies, Oxford University Press, vol. 7(1), pages 28-41.
- Geoffrey W. Gardiner, 2004. "The Primacy of Trade Debts in the Development of Money," Chapters,in: Credit and State Theories of Money, chapter 6 Edward Elgar Publishing.
- Thomas I. Palley, 1991. "The Endogenous Money Supply: Consensus and Disagreement," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 13(3), pages 397-403, March. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:lev:wrkpap:wp_512. 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: (Elizabeth Dunn)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.