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The Money Supply in Macroeconomics

Author

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  • Peter Howells

    (UWE, Bristol)

Abstract

The notion that the quantity of money in an economy might be endogenously determined has a long history. Even so, it has never been part of mainstream economic thinking which has remained dominated by the view that the policymaker somehow controls the stock of money and that interest rates are market-determined. However, the need to design and operate a monetary policy that works for modern economies as they are currently constructed, has led to the emergence of the so-called ‘new consensus macroeconomics’ in which it is recognised that the policymaker sets a short-term interest rate and the quantities of money and credit are demand-determined. This paper looks at the way in which this ‘new consensus’ is (at last) forcing a recognition, in the teaching of money, that the money supply is endogenously determined. It also shows how we can take this further by adding a banking sector to a model of the real economy in which the money supply is endogenously determined. The paper ends by showing how some of the issues currently emerging in the new consensus are very closely related to earlier debates amongst post Keynesian economists.

Suggested Citation

  • Peter Howells, 2009. "The Money Supply in Macroeconomics," Working Papers 0904, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
    • Handle: RePEc:uwe:wpaper:0904
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    File URL: http://carecon.org.uk/DPs/0904.pdf
    File Function: First version, 2009
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    Cited by:

    1. Jan Korda, 2011. "Monetární nerovnováha v teorii endogenních peněz [Monetary Disequilibrium in the Theory of Endogenous Money]," Politická ekonomie, Prague University of Economics and Business, vol. 2011(5), pages 680-705.

    More about this item

    Keywords

    Money supply; macroeconomics;

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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