scholarly journals Computational Analysis of the Properties of Post-Keynesian Endogenous Money Systems

2021 ◽  
Author(s):  
Stef Kuypers ◽  
Thomas Goorden ◽  
Bruno Delepierre
Keyword(s):  
Growth Rate ◽  
Computational Analysis ◽  
Money Stock ◽  
Loan Rate ◽  
Monetary System ◽  
Good Account ◽  
Endogenous Money ◽  
Observable Data ◽  
New Perspective ◽  
Policy Discussion

“Money has always been something of an embarrassment to economic theory. Everyone agrees that it isimportant; indeed, much of macroeconomic policy discussion makes no sense without reference to money.Yet, for the most part theory fails to provide a good account for it.”(Banerjee and Maskin, 1996, p. 955)The debate about whether or not a growth imperative exists in debt based, interest bearing mone-tary systems has not yet been settled. It is the goal of this paper to introduce a new perspective inthis discussion.For that purpose an SFC computational model is constructed which simulates a post KeynesianEndogenous Money system without including economic parameters such as production, wages,consumption and savings. A case is made that isolating the monetary system allows for betteranalysis of the inherent properties of such a system.Loan demands, which are assumed to happen, are the driving force of the model. Simulationscan be run in 2 modes, each based on a different assumption. Either the growth rate of the moneystock is assumed to be constant or the loan rate, expressed as a percentage of the money stock, isconsidered to be constant.Simualtions with varying parameters are run in order to determine the conditions under whichthe model converges to stability, which is defined as converging to a bounded debt rate.The analysis shows that stability of the model is dependent on net bank profit ratios, expressedrelative to their debt assets, remaining below the growth rate of the money stock. Based on thesefindings it is argued that the question about the existence of a growth imperative in debt based,interest bearing monetary systems needs to be reframed. The question becomes whether a steadystate economy can support such a system without destabilizing it.It is concluded that there are indications that this might not be the case. However, for a definiteanswer more research is necessary. Real world observable data should be analysed through thelens of the presented model to bring more clarity.

scholarly journals Computational Analysis of the Properties of Post-Keynesian Endogenous Money Systems

2021 ◽  
Vol 14 (7) ◽  
pp. 335
Author(s):  
Stef Kuypers ◽  
Thomas Goorden ◽  
Bruno Delepierre
Keyword(s):  
Growth Rate ◽  
Steady State ◽  
Real World ◽  
Money Stock ◽  
Monetary System ◽  
Monetary Systems ◽  
State Economy ◽  
Endogenous Money ◽  
New Perspective ◽  
The Stability

The debate about whether or not a growth imperative exists in debt-based, interest-bearing monetary systems has not yet been settled. It is the goal of this paper to introduce a new perspective in this discussion. For that purpose, an SFC computational model is constructed that simulates a post-Keynesian endogenous money system without including economic parameters such as production, wages, consumption and savings. The case is made that isolating the monetary system allows for better analysis of the inherent properties of such a system. Loan demands, which are assumed to happen, are the driving force of the model. Simulations can be run in two modes, each based on a different assumption. Either the growth rate of the money stock is assumed to be constant or the loan ratio, expressed as a percentage of the money stock, is assumed to be constant. Simulations with varying parameters were run in order to determine the conditions under which the model converges to stability, which is defined as converging to a bounded debt ratio. The analysis showed that the stability of the model is dependent on net bank profit ratios, expressed relative to their debt assets, remaining below the growth rate of the money stock. Based on these findings, it is argued that the question about the existence of a growth imperative in debt-based, interest-bearing monetary systems needs to be reframed. The question becomes whether a steady-state economy can realistically support such a system without destabilising it. In order to answer this question, the real-world behaviour of economic actors must be included in the model. It was concluded that there are indications that it might not be feasible for a steady-state economy to support a stable debt-based, interest-bearing monetary system without strong interventions. However, more research is necessary for a definite answer. Real-world observable data should be analysed through the lens of the presented model to bring more clarity.

scholarly journals The Deutsche Bundesbank's Concept of Monetary Policy, With Particular Reference to its Choice of Intermediate Variables in the Period 1972-1979

2021 ◽  
Author(s):  
◽  
Petrus Simons
Keyword(s):  
Monetary Policy ◽  
Public Sector ◽  
Foreign Capital ◽  
Bank Lending ◽  
Capital Formation ◽  
Wage Bargaining ◽  
Price Stability ◽  
Money Stock ◽  
Intermediate Target ◽  
Loan Rate

<p>The maintenance of price stability is the Bundesbank's ultimate objective. The memory of two hyperinflations within a 30-year period has made the fight against inflation of paramount social and political importance. In the Bank's view inflation engenders uncertainties which may jeopardise capital investment on which the competitiveness of German industry as well as full employment and economic growth depends. The Bundesbank pursues this goal by setting the marginal cost of central bank money required by the banks to finance their expansion. Thus, both the liquidity of the banking system and the cost of borrowing are controlled. This does not necessarily mean that the banks' loan rate of interest is the Bundesbank's Intermediate target. In fact, the Bank does not have one single intermediate target. Since the Bank's views of the monetary sector are manifested in the form of an interlocking system of financial variables, the selection of an appropriate intermediate target depends on the actual economic situation. In this context, the money stock supply (M3) is seen by the Bundesbank as functionally related to bank lending and the accumulation of long-term funds at the banks (monetary capital formation). An increase in interest rates would reduce bank lending, stimulate monetary capital formation and hence reduce the money stock supply (M3). In addition, it would check the utilisation of the money stock supply. This is seen as important because once money has entered the system it may generate unacceptable expenditure flows. To control the growth of the money stock supply, the Bundesbank relies on monetary capital formation, because small stocks of public debt rule out large-scale open market operations. In the Bank's view monetary policy should aim at keeping the banks' loan rate of interest as closely as possible to the natural rate. Lags in this Wicksellian transmission process may arise if the banks have ample margins between their loan and deposit rates when a restrictive monetary policy is implemented. As deposit rates adjust sooner than loan rates to a change in market rates, this also blunts the immediate impact of a policy change. The Bundesbank favours flexible rates of exchange in order to safeguard the financial system against inflows of foreign capital. It would welcome an appreciation of the D-Mark as a contribution to price stability, even though it could result in a loss of employment and exports as it stimulates German business to invest abroad. Furthermore, the Bank aims at constraining the monetary disturbances arising from public sector deficits and collective wage bargaining by means of its annual monetary growth target. This should serve as a signal to non-banks, which they are supposed to internalise in their decision-making. During the review period, the effectiveness of these safeguards was small as witnessed by inflows of foreign capital, large public sector deficits and excessive wage settlements. Moreover, the Bundesbank has been confronted with the development of parallel markets, in particular the Eurocurrency markets, in which borrowers can avoid the effects of its constraints.</p>

scholarly journals A Small-Open-Economy Model and Endogenous Money Stock

2005 ◽  
Vol 13 (1) ◽  
pp. 26-35 ◽  
Author(s):  
Jan Kodera ◽  
Miloslav Vošvrda ◽  
Karel Sladký
Keyword(s):  
Open Economy ◽  
Small Open Economy ◽  
Money Stock ◽  
Economy Model ◽  
Endogenous Money

scholarly journals The Deutsche Bundesbank's Concept of Monetary Policy, With Particular Reference to its Choice of Intermediate Variables in the Period 1972-1979

2021 ◽  
Author(s):  
◽  
Petrus Simons
Keyword(s):  
Monetary Policy ◽  
Public Sector ◽  
Foreign Capital ◽  
Bank Lending ◽  
Capital Formation ◽  
Wage Bargaining ◽  
Price Stability ◽  
Money Stock ◽  
Intermediate Target ◽  
Loan Rate

<p>The maintenance of price stability is the Bundesbank's ultimate objective. The memory of two hyperinflations within a 30-year period has made the fight against inflation of paramount social and political importance. In the Bank's view inflation engenders uncertainties which may jeopardise capital investment on which the competitiveness of German industry as well as full employment and economic growth depends. The Bundesbank pursues this goal by setting the marginal cost of central bank money required by the banks to finance their expansion. Thus, both the liquidity of the banking system and the cost of borrowing are controlled. This does not necessarily mean that the banks' loan rate of interest is the Bundesbank's Intermediate target. In fact, the Bank does not have one single intermediate target. Since the Bank's views of the monetary sector are manifested in the form of an interlocking system of financial variables, the selection of an appropriate intermediate target depends on the actual economic situation. In this context, the money stock supply (M3) is seen by the Bundesbank as functionally related to bank lending and the accumulation of long-term funds at the banks (monetary capital formation). An increase in interest rates would reduce bank lending, stimulate monetary capital formation and hence reduce the money stock supply (M3). In addition, it would check the utilisation of the money stock supply. This is seen as important because once money has entered the system it may generate unacceptable expenditure flows. To control the growth of the money stock supply, the Bundesbank relies on monetary capital formation, because small stocks of public debt rule out large-scale open market operations. In the Bank's view monetary policy should aim at keeping the banks' loan rate of interest as closely as possible to the natural rate. Lags in this Wicksellian transmission process may arise if the banks have ample margins between their loan and deposit rates when a restrictive monetary policy is implemented. As deposit rates adjust sooner than loan rates to a change in market rates, this also blunts the immediate impact of a policy change. The Bundesbank favours flexible rates of exchange in order to safeguard the financial system against inflows of foreign capital. It would welcome an appreciation of the D-Mark as a contribution to price stability, even though it could result in a loss of employment and exports as it stimulates German business to invest abroad. Furthermore, the Bank aims at constraining the monetary disturbances arising from public sector deficits and collective wage bargaining by means of its annual monetary growth target. This should serve as a signal to non-banks, which they are supposed to internalise in their decision-making. During the review period, the effectiveness of these safeguards was small as witnessed by inflows of foreign capital, large public sector deficits and excessive wage settlements. Moreover, the Bundesbank has been confronted with the development of parallel markets, in particular the Eurocurrency markets, in which borrowers can avoid the effects of its constraints.</p>

Endogenous money, liquidity and monetary reform

2020 ◽  
Vol 17 (3) ◽  
pp. 367-380
Author(s):  
Sheila Dow
Keyword(s):  
Financial Crisis ◽  
Money Supply ◽  
Global Financial Crisis ◽  
Monetary Reform ◽  
Monetary System ◽  
Endogenous Money ◽  
Reform Debate

Following its revival in the 1980s, the idea of endogenous money became increasingly widely accepted. Indeed the 2008 global financial crisis was widely blamed on the untrammelled power of banks to create credit. As a result, among the ideas for reforming the monetary system are proposals designed to eliminate that power, that is, to make the money supply exogenous. The purpose of this paper is to go back to the theory of endogenous money in order to assess these proposals, in terms of what is desirable, but also crucially what is feasible. Central to this discussion is a consideration of the range of meanings given to money and endogeneity. It is argued that what is regarded as money under different conditions is an important element in money endogeneity, and is particularly relevant for the monetary reform debate.

scholarly journals ISLAMIC ENDOGENOUS MONEY: EVIDENCE FROM ISLAMIC BANKING SYSTEM IN INDONESIA AND MALAYSIA

2021 ◽  
Vol 7 (3) ◽  
Author(s):  
Khoirul Umam ◽  
Abdul Ghafar Ismail ◽  
Achmad Tohirin ◽  
Jaka Sriyana
Keyword(s):  
Empirical Studies ◽  
Banking System ◽  
Financial System ◽  
Empirical Method ◽  
Islamic Banking ◽  
Fractional Reserve Banking ◽  
Monetary System ◽  
Fractional Reserve ◽  
Endogenous Money ◽  
Reserve Banking

This research is conducted due to the un-ware contemporary Muslim economists on the feature of money whether exogenous or endogenous. Arguing that money in Islam should be endogenous, Choudhury (1997) asserts that fiat and fractional reserve systems makes money exogenous. If it is true, this condition leads to the un-oriented development of Islamic monetary and financial systems that are basically is fiat and fractional reserve systems. Accordingly, the empirical studies on Islamic monetary policy in Islamic financial system that is based on exogenous money concept cannot reveal the true money supply for the economy. This paper aims to propose the theoretical model of endogenous Islamic money and conduct an empirical study of the model on Islamic banking that is based on fiat and fractional reserve systems. The empirical method used is based on the ARDL and ECM. The result of the research gives evidence that the profit and loss sharing system is a core feature of the Islamic endogenous money system in the fractional reserve requirement system. Other evidence reveals that the development of the Islamic financial system can minimize the existence of exogenous money in a fiat monetary system. By these results, this study argues that Islamic endogenous money system can be developed in fiat and fractional reserve banking systems through the profit and loss sharing systems.

The Endogenous Money Stock

1979 ◽  
Vol 2 (1) ◽  
pp. 49-70 ◽  
Author(s):  
Basil J. Moore
Keyword(s):  
Money Stock ◽  
Endogenous Money
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