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The Twin Endogeneities Hypothesis: A Theory of Central Bank Evolution

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  • Daniyal Khan

    (Department of Economics, New School for Social Research)

Abstract

The paper outlines a theory according to which central banking evolves as the result of an interaction between endogenous money and endogenous institutions. This theory is called the twin endogeneities hypothesis and forms the basis for two models which are developed and used to explain two stylized facts of central bank evolution. These models are examples of operationalization of the hypothesis. The first model, combining endogenous money and hysteresis, explains the first stylized fact, namely that there are two different origin tendencies in the history of central banking. The second model is a heuristic model which combines the swings of the Polanyi pendulum (or the Polanyian double movement) with swings in long run central bank independence to explain the latter. These examples serve to demonstrate how the twin endogeneities hypothesis, a theory in the tradition of institutionalist Post Keynesianism, can be used to develop models which help us unpack and address the evolution of central banking from a theoretical point of view.

Suggested Citation

  • Daniyal Khan, 2021. "The Twin Endogeneities Hypothesis: A Theory of Central Bank Evolution," Working Papers 2102, New School for Social Research, Department of Economics.
  • Handle: RePEc:new:wpaper:2102
    as

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    File URL: http://www.economicpolicyresearch.org/econ/2021/NSSR_WP_022021.pdf
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    References listed on IDEAS

    as
    1. Paul Davidson, 1991. "Is Probability Theory Relevant for Uncertainty? A Post Keynesian Perspective," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 129-143, Winter.
    2. Hamouda, Omar F & Harcourt, G C, 1988. "Post Keynesianism: From Criticism to Coherence?," Bulletin of Economic Research, Wiley Blackwell, vol. 40(1), pages 1-33, January.
    3. Charles Goodhart, 1988. "The Evolution of Central Banks," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262570734.
    4. Kari Polanyi-Levitt, 2012. "The Power of Ideas: Keynes, Hayek, and Polanyi," International Journal of Political Economy, Taylor & Francis Journals, vol. 41(4), pages 5-15.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Endogeneity; evolution; money; institutions; central banking;
    All these keywords.

    JEL classification:

    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary; Modern Monetary Theory;
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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