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Endogenous Money in a Coherent Stock-Flow Framework

  • Marc Lavoie

    (University of Ottawa)

A method advocated by Wynne Godley to model monetary macroeconomics, is presented. The method, based on a transactions matrix, essentially makes sure that every flow goes somewhere and comes from somewhere, so that there are no black holes. The method is put to use for several purposes: to illustrate the monetary circuit of credit money; to demonstrate that there can be a separate portfolio (stock) demand for money, but not one independent from the rest of the model; to show that there cannot be an excess supply of credit; to handle the cases of credit for speculation purposes and high liquidity preference; to underline that endogenous money at fixed interest rates is still compatible with any government deficit; and to show that even when banks have liquidity norms, larger amounts of loans do not necessarily induce higher interest rates. Briefly stated, the paper shows that many of the claims made by Horizontalist authors are confirmed when a fully coherent accounting framework is put in place to assess their claims.

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File URL: http://econwpa.repec.org/eps/mac/papers/0103/0103007.pdf
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Paper provided by EconWPA in its series Macroeconomics with number 0103007.

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Length: 32 pages
Date of creation: 27 Mar 2001
Date of revision:
Handle: RePEc:wpa:wuwpma:0103007
Note: Type of Document - Adobe Acrobat PDF; prepared on IBM PC; to print on PostScript; pages: 32; figures: included
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Godley, Wynne, 1999. "Money and Credit in a Keynesian Model of Income Determination," Cambridge Journal of Economics, Oxford University Press, vol. 23(4), pages 393-411, July.
  2. Peter G. A. Howells, 1997. "The Demand for Endogenous Money: A Rejoinder," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 19(3), pages 429-435, April.
  3. Martin H. Wolfson, 1996. "A Post Keynesian Theory of Credit Rationing," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 18(3), pages 443-470, April.
  4. Marc Lavoie & Wynne Godley, 2000. "Kaleckian Models of Growth in a Stock-Flow Monetary Framework: A Neo-Kaldorian Model," Macroeconomics 0004049, EconWPA.
  5. David Romer, 2000. "Keynesian Macroeconomics without the LM Curve," NBER Working Papers 7461, National Bureau of Economic Research, Inc.
  6. Davidson, Paul, 1972. "Money and the Real World," Economic Journal, Royal Economic Society, vol. 82(325), pages 101-15, March.
  7. Basil J. Moore, 1997. "Reconciliation of the Supply and Demand for Endogenous Money," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 19(3), pages 423-428, April.
  8. Lavoie, Marc, 1999. "The Credit-Led Supply of Deposits and the Demand for Money: Kaldor's Reflux Mechanism as Previously Endorsed by Joan Robinson," Cambridge Journal of Economics, Oxford University Press, vol. 23(1), pages 103-13, January.
  9. Marc Lavoie, 1992. "Foundations of Post-Keynesian Economic Analysis," Books, Edward Elgar, number 275, 6.
  10. Sheila C Dow, 1994. "Endogenous Money," Working Papers Series 94/12, University of Stirling, Division of Economics.
  11. Giancarlo Bertocco, 2001. "Is Kaldor's Theory of Money Supply Endogeneity Still Relevant?," Metroeconomica, Wiley Blackwell, vol. 52(1), pages 95-120, 02.
  12. Victoria Chick, 1983. "Macroeconomics after Keynes: A Reconsideration of the General Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262530457, June.
  13. Lavoie, Marc, 1996. "Horizontalism, Structuralism, Liquidity Preference and the Principle of Increasing Risk," Scottish Journal of Political Economy, Scottish Economic Society, vol. 43(3), pages 275-300, August.
  14. L. Randall Wray, 1998. "Modern Money," Economics Working Paper Archive wp_252, Levy Economics Institute.
  15. Tobin, James, 1982. "Money and Finance in the Macroeconomic Process," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 14(2), pages 171-204, May.
  16. Wray, L Randall, 1992. "Alternative Theories of the Rate of Interest," Cambridge Journal of Economics, Oxford University Press, vol. 16(1), pages 69-89, March.
  17. Charles Goodhart, 1989. "Has Moore Become too Horizontal?," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 12(1), pages 29-34, October.
  18. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
  19. Jamee K. Moudud, 1999. "Finance in a Classical and Harrodian Cyclical Growth Model," Economics Working Paper Archive wp_290, Levy Economics Institute.
  20. L. Randall Wray, 1998. "Understanding Modern Money," Books, Edward Elgar, number 1668, 6.
  21. Wynne Godley, 1999. "Seven Unsustainable Processes: Medium-Term Prospects and Policies for the United States and the World," Economics Strategic Analysis Archive 99-10, Levy Economics Institute.
  22. Chick, Victoria, 1995. "Is There a Case for Post Keynesian Economics?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 42(1), pages 20-36, February.
  23. John F. Henry & L. Randall Wray, 1998. "Economic Time," Macroeconomics 9811004, EconWPA.
  24. Wynne Godley, 1996. "Money, Finance and National Income Determination: An Integrated Approach," Economics Working Paper Archive wp_167, Levy Economics Institute.
  25. David Backus & William C. Brainard & Gary Smith & James Tobin, 1980. "A Model of U.S. Financial and Nonfinancial Economic Behavior," Cowles Foundation Discussion Papers 548, Cowles Foundation for Research in Economics, Yale University.
  26. Peter G. A. Howells, 1995. "The Demand for Endogenous Money," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 18(1), pages 89-106, October.
  27. Hicks, John, 1989. "A Market Theory of Money," OUP Catalogue, Oxford University Press, number 9780198287247, March.
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