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The Excess Demand Theory of Money

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  • Kehrwald, Bernie

Abstract

This paper introduces a new monetary theory. A simple model is described in which a central bank sets the interest rate in a way that the excess demand for credits equals the preferred amount of money. It is compatible with the Keynesian liquidity preference theory and the neoclassical loanable funds theory and can be used to explain a series of phenomena. It is very suitable for introductory textbooks.

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  • Kehrwald, Bernie, 2014. "The Excess Demand Theory of Money," MPRA Paper 57603, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:57603
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    References listed on IDEAS

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    1. Hans-Werner Sinn & Timo Wollmershäuser, 2012. "Target loans, current account balances and capital flows: the ECB’s rescue facility," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(4), pages 468-508, August.
    2. Foley, Duncan K, 1975. "On Two Specifications of Asset Equilibrium in Macroeconomic Models," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 303-324, April.
    3. Alvin H. Hansen, 1951. "Classical, Loanable-Fund, and Keynesian Interest Theories," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 65(3), pages 429-432.
    4. Jörg Bibow, 2000. "The Loanable Funds Fallacy in Retrospect," History of Political Economy, Duke University Press, vol. 32(4), pages 789-832, Winter.
    5. Don Patinkin, 1958. "Liquidity Preference and Loanable Funds : Stock and Flow Analysis," Economica, London School of Economics and Political Science, vol. 25(100), pages 300-318, November.
    6. Fabian Lindner, 2015. "Does Saving Increase the Supply of Credit? A Critique of Loanable Funds Theory," World Economic Review, World Economics Association, vol. 2015(4), pages 1-1, February.
    7. Giancarlo Bertocco, 2013. "On Keynes's Criticism of the Loanable Funds Theory," Review of Political Economy, Taylor & Francis Journals, vol. 25(2), pages 309-326, April.
    8. M. G. Hayes, 2010. "The loanable funds fallacy: saving, finance and equilibrium," Cambridge Journal of Economics, Oxford University Press, vol. 34(4), pages 807-820.
    9. Naples, Michele I & Aslanbeigui, Nahid, 1996. "What Does Determine the Profit Rate? The Neoclassical Theories Presented in Introductory Textbooks," Cambridge Journal of Economics, Oxford University Press, vol. 20(1), pages 53-71, January.
    10. Harry G. Johnson, 1951. "Some Cambridge Controversies in Monetary Theory," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 19(2), pages 90-104.
    11. Wicksell, Knut, 1907. "The Influence of the Rate of Interest on Prices," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 17, pages 213-220.
    12. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
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    More about this item

    Keywords

    money; interest rate; credit; central bank; savings; investments;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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