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Beyond the static money multiplier: in search of a dynamic theory of money

Author

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  • Berardi, Michele

Abstract

In this paper, we analyze the process of money creation in a credit economy. We start from the consideration that the traditional money multiplier is a poor description of this process and present an alternative and dynamic approach that takes into account the heterogeneity of agents in the economy and their interactions. We show that this heterogeneity can account for the instability of the multiplier and that it can make the system path-dependent. By using concepts and techniques borrowed from network theory and statistical mechanics, we then try to shed some light on the actual process by which money is endogenously created in an economy.

Suggested Citation

  • Berardi, Michele, 2007. "Beyond the static money multiplier: in search of a dynamic theory of money," MPRA Paper 19287, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:19287
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    File URL: https://mpra.ub.uni-muenchen.de/19287/1/MPRA_paper_19287.pdf
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    References listed on IDEAS

    as
    1. Finn E. Kydland & Edward C. Prescott, 1990. "Business cycles: real facts and a monetary myth," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 3-18.
    2. Adrian Dragulescu & Victor M. Yakovenko, 2000. "Statistical mechanics of money," Papers cond-mat/0001432, arXiv.org, revised Aug 2000.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Money; Money multiplier; Network theory; Statistical mechanics.;

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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