« Banking "mysticism" and the hot potato | Main | The case for taxing basic groceries »


Feed You can follow this conversation by subscribing to the comment feed for this post.

I just skimmed Ramanan's post. The Ramanan/Moore/Godley/Lavoie position is much more coherent than Steve Keen. I would much rather argue with R. I can understand what he is saying, and it's clear and coherent. R at least is wrong ;-)

Hah, Nick, remember helping out on this paper? http://www.economics.adelaide.edu.au/research/papers/doc/wp2000-02.pdf

"can we imagine circumstances in which the Bank of Canada wants to tighten monetary policy to prevent inflation rising above target, but knows that if it did so a major commercial bank would be illiquid and fail? Maybe.

Does this happen all the time? Obviously not. If it did, the Bank of Canada would never be able to keep inflation on target."

well, as you know, post keynesians don't think that the central bank can really keep inflation on target. Again "tighten[ing] monetary policy" is simply raising the interest rate one is targeting. It is not withholding reserves from the banking system because the economy has overheated. Again, "Since the quantity of balances demanded is highly interest inelastic, the main function of open market operations is to ensure that the banking system’s demand for balances are satisfied either on a day-to-day basis or, where reserve requirements with averaging provisions are in place, over the reserve maintenance period. Failure to do so would result in extreme interest rate volatility"


"More generally, one of the reasons people keep buffer stocks of money, and banks keep buffer stocks of central bank money, is so we don't go illiquid when some sort of surprise happens."

have you read the central bank literature on this?

Right- whatever you think the CB can achieve by changing interest rates (inflation, NDGP etc), what it is doing is changing interest rates, not withholding reserves.

I'm trying to wrap my head around Nick's last post:

wh10: can we imagine circumstances in which the Bank of Canada wants to tighten monetary policy to prevent inflation rising above target, but knows that if it did so a major commercial bank would be illiquid and fail? Maybe.

Does this happen all the time? Obviously not. If it did, the Bank of Canada would never be able to keep inflation on target.

More generally, one of the reasons people keep buffer stocks of money, and banks keep buffer stocks of central bank money, is so we don't go illiquid when some sort of surprise happens. But cue Minsky/Leijonhufvud corridoor at this point.

Are you saying that the Bank of Canada could potentially tighten monetary policy by restricting the amount of reserves which it makes available on a day to day basis?

My other question concerns Nick's previous point that while within a specified period we can imagine a horizontal supply curve for reserves, anything beyond this period (in the long run) target interest rates become endogenous. What would the variable that determines the target interest rate in the long run, and why would this function be a structural relationship and not susceptible to the Lucas critique? What is the shape of the supply curve for reserves in the long run?

I think the key contentions in this debate are:

1. whether banks are contained by the quantity of reserves on their balance, and whether the entire banking system is constrained by the quantity of reserves.
2. Whether including a banking sector is important in a model about debt and leveraging.
3. Assuming that the horizontalist story is correct in the short-run (as I believe Nick does above) then how do we go from this short-run story to what seems like a contradictory story (at least to my limited understanding) in the long-run?

I just don't see how it's contradictory in the long-run. Whatever its goals, the CB is changing the interest rate to achieve them, but it is always supplying reserves according to banks' needs. It's just that the price of those reserves may change, which may influence credit creation etc. It seems Nick is assuming the conclusion he wants - that in the long run, in order to achieve its inflation target, the CB will restrict the qty of reserves and thus not supply them as needed. But this is an improper and misleading understanding of the reality. The CB will always supply reserves as needed, but perhaps it can influence the qty of reserves needed by changing interest rates.

heavy hitter #2: http://neweconomicperspectives.org/2012/04/krugmans-flashing-neon-sign.html

Nick, if you want to critique the real opposition to Krugman's views on banking and lending, then what you should be doing is critiquing Fullwiler's post here http://neweconomicperspectives.org/2012/04/krugmans-flashing-neon-sign.html . The most critical parts, which I have been trying to push you on here in these last couple of comments, are the points about the stability of the payments system and what that means for what the CB does over a period of 6 wks/a month/year/the long term/etc. Fullwiler also delivers an interesting rejoinder to your theory of hot potato money.

Just entering this discussion now and I have a question for Nick.

Is an underlying assumption in your model that an increase in bank lending cannot affect the velocity of the monetary base? That's how I understand the argument that banks need to "persuade" the public not to withdraw cash. In a model where an increase in bank lending tends to increase the velocity of the monetary base, the incentive to withdraw cash could disappear. Do you agree?

Determinant, really?! NO RTGS system in Canada?! Wow. It is old-fashioned :) I have to be more careful in the future.

Re: Nick Rowe comment at 9:30PM above

You may want to re-read what Steve Keen wrote on his blog. He very clearly was referring to neoclassical DSGE models when he listed the 3 points that you criticized rather sternly. However, if you had read down two paragraphs you would have read:

[So economists like Krugman—who describe themselves as “New Keynesians”—have tweaked the base case to derive models that “ape” real-world data, with “sticky” prices rather than perfectly flexible ones, “frictions” that slow down quantity adjustments, and imperfect competition to generate less-than-optimal social outcomes.]

It seems to me that your criticisms and general dismissive tone were not warranted.

I would really like to see a collegial dialog between you, Keen, and Krugman -- without disturbances to the "FORCE" and confusion from us rabble.

Nick, in the end the ral problem is that neo-classical economics lacks a proper definition of money, as conceded by... neo-classical economists. Your post is a victim of tis, too, as it does not seem to recognize that savings accounts are considered to be money, too.

the guy to read is Ulrich Bindseil, former head o'liquidity operations'of the European Central Bank, who agrees flat out with the MMT/Austrian/Central Banking/BIS view on money creation and therewith condems your view. For one thing, he shows that your view has never been endorsed by for instance the British Cenbtral bank:


On the somewhat predictable as well as unpredictable and in any case institutional determined demand for deposit-money in the different countries in Europe (and differences are LARGE): Erwan Mahe (also a 'FIRE' insider): http://rwer.wordpress.com/2012/03/30/money-circulation-on-the-eurozone-banks-deposits-under-the-lens/ This article also shows how a determined researcher can use basic data to construct his own metrics on part of money.

Divisia money: it's just another weighted average. The way to obtain these weights is somewhat complicated while they use a somewhat complicated way to calculate the average. But just like HP-filters in the end do not differ to much from a 'normal' running weighted average the method does not matter to much. A simpler and cruder method yields about the same results.

(A VAR is, when you think of it, little more than a weighted interdimensional (that's indeed neat) moving average, which by definition results in 'stable' results when shocks occur to one of the dimensions. Don't be blinded by method.

By the way: according to the Dutch National Accounts, savings accounts (part of the stock of money, according to the definitions,

This article seems to make the case for endogenous money more clearly than Steve's latest response: http://www.nakedcapitalism.com/2012/04/scott-fullwiler-krugmans-flashing-neon-sign.html#comments

Scott fullwiler definitely more clear. One question for Scott; what happens when the 6 weeks are up, and the interest rate becomes an endogenous variable?

Gotta go teach and do committees. Back much later.

Okay, I posted your question at NEP. Not sure if Fullwiler will have the time to respond, and not sure what you mean. Are you suggesting that there comes a point in time where the CB loses control of managing the interest rate on reserves? That doesn't seem right at all. Or are you suggesting there is a certain way the CB will need to alter interest rates so as to keep the price level stable? I feel like you're thinking more the latter. Now, it seems to me that is a topic that is up for much more debate, but in either case, the Fed will continue to operate through changes in interest rates, rather than quantities.

"Bank loan officers can’t just issue checks out of thin air; like employees of any financial intermediary, they must buy assets with funds they have on hand."

If Krugman's claim is modified to:

"... they must buy assets with funds they can get their hands on with 24 hours" (or however long banks have to balance the books)

how important is that? If you move from thinking that banks must have the funds first and lend them second, to thinking that banks can lend first and locate the funds second, what are the important consequences?


"Okay so consumption is inversely related to income or what?"

I think it's probably a function of relative permanent income.

Is Milton Friedman a monetarist or a Keynesian in your classification?


Here's Krugman:

'First of all, any individual bank does, in fact, have to lend out the money it receives in deposits. Bank loan officers can’t just issue checks out of thin air; like employees of any financial intermediary, they must buy assets with funds they have on hand.'

We know the theory we are attacking. We have studied it far more than you have studied endogenous money.

If you can be bothered, and assuming nobody else has linked this yet, Scott Fullwiler has probably the best guide to endogenous money and where the money multiplier goes wrong:


Also maybe I worded that sentence badly. But it does seem to be that injecting new money into the system will increase nominal demand by the same amount, obviously minus whatever is not spent/invested?

Luis Enrique - you are still wrong with your modified statement. Please very carefully read this - http://neweconomicperspectives.org/2012/04/krugmans-flashing-neon-sign.html . There is not a more thorough explanation in specific context of this debate out there. The bank does not have to "buy assets WITH FUNDS they can get their hands on with 24 hours." They can borrow them, from the interbank market or central bank. It has significant implications for what restrains bank loan activity. It is properly thought of cost of liabilities and profitable opportunities, not quantity restrictions! Read the piece please!


"They can borrow them, from the interbank market or central bank"

er, yes, that's what I meant by getting their hands on the funds.

Nick- your question has been answered at NEP by professional economics, in the same way we already have, but perhaps their academic degrees and experience will carry more weight with you? http://neweconomicperspectives.org/2012/04/krugmans-flashing-neon-sign.html#comment-9197

As we said, after 6 weeks the bank will alter the interest rate where they like, but it is still ultimately under their control. My sense is that you think there are certain actions the CB absolutely must take to maintain price stability/full employment/etc as a result of endogenous processes, but nonetheless, the interest rate is still exogenous since the CB can move it wherever they like, regardless of its impact on the economy. You want to call this endogenous, but this is imprecise language. And it's STILL about changing the interest rate, NOT proactively changing quantity of reserves.


So you're saying that interest rates are exogenous because, while they must be moved to meet the CB's functions, the CB can move it (and keep it) wherever they like if they are willing to tolerate any amount of economic disturbance as a result of this policy?

o Scott and Nick,

I thought I would my hat into this ring. First, good pieces by both of you. I think this goes a long way in clarifying some ambiguities. To answer Nick’s question, in 6 weeks 3 things can happen: 1) the rate can increase, 2) it can decrease or 3) it can stay the same. This is entirely at the discretion of the central bank. There are no market forces acting on the rate. Currently the CB follows an inflation target. Assuming some inflation pressure, the CB would raise the rate. But this is not the result of market forces: it is an exogenous or administered decision by the CB. In this case it would raise the rate to, say, 2%. Markets would adjust and the market rate would move to 2%. Markets know that the CB can enforce this rate ay any time, so they will comply.
Now, the proof, so to speak, that the rate is full under the control of the central bank is that assume for a moment that the CB had an unemployment target, in which case, the rate would need to fall further, and the CB would lower the rate to, say, 1%. Or the CB may decide to leave the rate where it is.
In the first scenario, the horizontal supply curve would move upward at a higher rate: a vertical shift of the horizontal curve. In the second scenario, the curve drifts downward io the new lower rate, whereas it would stay where it is if the CB did not change the rate.

The CB does not use reserves to target the rate of interest: they simply announces what the rate is and the market will tend towards it.

There is much to read on here and reply to. I wish i had more time to do so.

I hope this helps. Thank you to both.

W. Peden, this is the response I left at NEP, in response to Louis-Philippe Rochon's comment above (which should answer your question). I think I can answer you "yes," but I am not sure of what you mean by "they must be moved." Do you mean "they must be moved" to achieve the CB's policy goals? If so - The point remains that the CB can move the interest rate wherever they like (regardless of the impact on the economy, as you note). That to me would be the definition of the interest rate being "exogenous." NOW, we can shift the discussion to what the influence of CB policy might be and what would constitute good policy, but that is different than a discussion about what is ultimately in control of the interest rate on reserves. The discussion about the impact of CB policy/good policy is certainly a discussion up for debate and one that is not as theoretically or empirically sound as the observation that the CB has ultimate control over the interest rate on reserves.

"To preempt, because I believe I have been down a similar road with Nick Rowe before, my sense is that he is saying the interest rate becomes endogenous because the CB will need to react to endogenous market forces in a very specific way to maintain price stability / full employment / or whatever the CB’s goal are etc. In other words, it will be ‘forced’ to alter the interest rate to specific levels to achieve those goals. In my mind, though, even if we assume Nick is right about the influence and necessary path of the CB’s policy, the interest rate is still exogenous because the CB can still adjust it to wherever it likes, regardless of the impact on the economy. But now we’ve entered into a debate about the influence of CB policy and what constitutes good CB policy and have exited a discussion about the ‘exogeneity’ of the interest rate on reserves."

W. Peden- I should be more precise and say "the interest rate on reserves being "exogenous."" I didn't though because everyone in the debate, including Nick, did not include a modifier with the word "reserves."


Thank you for your clear and unambigious reply.

I agree that one should distinguish (a) "What the CB can control?" and (b) "What policy will have optimal results?" I would add a further distinct question: (c) "What does the CB do in practice?"

Drifting briefly onto (a), do you agree that if it was willing to fail in its LOLR function and tolerate a great deal of financial instability, the CB could control the monetary base? In that case, under the definition you use, isn't it the case that the monetary base is exogenous?

wh10: The bank does not have to "buy assets WITH FUNDS they can get their hands on with 24 hours." They can borrow them, from the interbank market or central bank. It has significant implications for what restrains bank loan activity. It is properly thought of cost of liabilities and profitable opportunities, not quantity restrictions!

right, i agree with that. when the 6 weeks are up the central bank changes the target rate. It does so in order to change the opportunity cost of bank liabilities. If the loan is not profitable, they will not make it, credit activity is restrained (or: the cost of the loan will be too high and the customer will not want the loan).

W Peden, I am going to have to come back to this later. Work time. Interesting point though. Perhaps it matters as what we define as the primary function of the CB? This is what the GAO says: “the primary objective of all central banks is to ensure the smooth functioning of their countries payments systems” (Government Accountability Office 2002, 2). http://www.gpo.gov/fdsys/pkg/GAOREPORTS-GAO-02-303/pdf/GAOREPORTS-GAO-02-303.pdf

I'll have to think about it though.

BTW, Krugman responds and it reveals we're implicitly dealing with this issue of being precise in what we are debating as you note. The Post-Keynesians were initially incensed about (a), and Krugman is still avoiding the fact that he said very specific things about how banks create loans that are unequivocally wrong (the loan officer comment etc etc). He is changing the goal posts to the discussion about optimal CB policy. But even then, like Nick Rowe, I believe he STILL does not understand how the CB implements policy when he says

"Nick Rowe gets to the heart of it: when you push this argument, it always ends up with an appeal to the notion that the central bank will always supply as much monetary base as the markets demand, at a fixed interest rate."

Yes- the CB will continue to supply them at a given rate. It HAS to to maintain integrity of the payments system! But NO ONE said FIXED (whatever that means), except Rowe and Krugman. The CB can still change the rate to where they think it should be (in an exogenous fashion, even if they are changing it in response to endogenous forces).


"Even if the demand for money were perfectly interest-inelastic (it isn't, but this assumption is just for illustration), it would be possible for the central bank to increase the actual stock of money, and make it exceed the desired stock of money, simply by lowering the rate of interest. By lowering the rate of interest people would want to borrow more money from the central bank."

Err, reality check? People will, (mostly), want to borrow what they can pay off. If they believe that their real incomes will decrease, they will limit borrowing at any positive interest rates (and hold their supply of cash to limit the damage to their real incomes). Isn't that what the whole liquidity trap is about? That people won't borrow at any interest?

Also, the fact that CBs might increase their rate in future is immaterial. I can buy an OIS swap, and fix my costs. As long as I have the right collateral, I can repo it to the CB at a KOWN cost to me for the duration of the loan (and if the loan is an accepted collateral by the CB, I have the collateral by definition). As long as I make more money from the loan than the operational costs of repoint it + interest paid to the swap provider, I have incentive to do so, and all I need is someone to make the loan to.

W Peden et al - I want to clarify again, on the point about whether the CB will supply reserves at a fixed/given/whatever rate.

The best way to put it is as Fullwiler puts it: "Central banks stand ready to provide reserve balances at some price always." Meaning they can't NOT supply them at some price (Peden, this is getting to your point about payment system instability etc. It's like imagining people can't withdraw their deposits b/c the Fed decides not supply currency etc).

But the point is it is about PRICE, NOT QUANTITY. No one here is arguing the CB has no influence on the economy or can't implement optimal policyetc. It's just about the coherence of a theory about how the CB interacts with banks and the private sector. And the best way PKers are proposing to think about it, it seems to me, is price not quantity.

And Nick, I want to take back that "you don't understand how the CB implements policy." Maybe that was a bit hasty and not what I really meant to say. Maybe you do, but you are inserting words like "fixed," which no one ever used, and that makes me wonder how you are thinking about the CB implementing policy (and the wording suggests you are think that the CB is going to actively deny supply of reserves to the banking system). Like I said above, the Fed always has to supply reserves at 8some price,* unless you want the payments system to collapse. Your point about what the CB should do is a different discussion.

""Supply" is what the sellers want."

That's an odd definition. The Wikipedia page for 'supply' is far more accurate:

"In economics, supply is the amount of some product producers are willing and able to sell at a given price all other factors being held constant. Usually, supply is plotted as a supply curve showing the relationship of price to the amount of product businesses are willing to sell."

Honestly Nick, and I hate to be harsh, but your original definition of 'supply' is actually gibberish. As a semantic statement it doesn't hold water. Read it again from a neutral perspective and you'll see what I mean. Supply is what sellers want? What!? Maybe they want love? Or affection? Or breakfast cereal? It's gibberish, Nick. Complete gibberish. And I think it affects the rest of your argument-cum-rant -- quite significantly if you actually think it through.

Be careful with this. The rest of the argument is a strawman and I'm sure comments above have dealt with that. But don't go around playing Wittgenstein and then dropping stinkers like "Supply is what sellers want".

"When someone tells me that supply is demand-determined, I cannot help but think that the words "supply" and "demand" are being misused. Perhaps you or your readers can think of exceptions....."

Under monopoly conditions supply is demand-determined. Again, the Wiki page provides us with a formulation of this:


"There is no such thing as a monopoly supply curve. Perfect competition is the only market structure for which a supply function can be derived."

This is pretty simple stuff. Real ECON 101. I get the overwhelming point that this rant is just that, a rant -- not an argument.

At the risk of sounding fatalistic, arrogant and dismissive, which I don't intend to be, I think endogenous proponents are missing the point.

Nick, Paul, Sumner and whoever else can't admit to being wrong because it would undermine half of their intellectual edifice. Under endogenous money, NGDP targeting cannot work. The liquidity trap is not real. A great deal of macroeconomics has its foundations taken from underneath it.

So in something like economics, where even the best evidence can be interpreted in any number of ways, why are they going to admit defeat? There's simply no way they can. See Cambridge Capital Controversies for something similar.

jeebus Philip Pilkington, do you imagine that when Nick wrote "Supply" is what the sellers want" he was trying to provide a definition?

That's absolutely true, but also why Nick, Sumner, and Krugman should skip their midlife crisis and pretend that the switch to Post-Keynesian economics is instead an intellectual renewal...a new lease on life. I think, if they think of it this way, then they can use their existing mental capacities and learn/understand economics the right way that they will live happily ever after.


yeah, whatever. whilst others can't admit that mainstream economists are right because it would undermine their self-image as brave speakers of truth to power who can see the Emperor has no clothes etc.

Prof. Rowe:

If the aim of economists is to find out why people make the choices they make, why don't the members of your profession spend more time reading the work of anthropologists and sociologists instead of fidling with abstract mathematical models that can only be made to work by using absurdly simplified models of what people are and what they chose based on? I mean, what is the point of that?


Well, if I'm really honestly, I'd say that the primary function of the central bank is to allow the government to avoid having to finance itself through taxation or debasement of coinage. If it's doing that job- which is its original function- then it's a central bank.

I think that if we use your definition of exogeneity then anything that the central bank can influence without end qualifies as an exogenous variable: interest rates, the monetary base, the exchange rate, nominal GDP, broad money, and basically every variable that isn't a real variable (and if you think that money is non-neutral in the long-run, then even real variables). Furthermore, the CB has the power to have multiple exogenous variables over different periods of time e.g. it can target interest rates in the short-run, the money supply in the medium-run, and nominal GDP in the long-run. That was exactly the operating procedure of the Bank of England/UK Treasury from about 1976-1988 and 1993-1997, with varying degrees of success.

I'm yet to be convinced that people as a whole are using "exogenous" and "endogenous" consistently during these debates, which is perhaps why everyone is so convinced that the other side(s) are obviously wrong. That perhaps wouldn't be a cause for concern if there wasn't an actual dispute here, but there IS an actual dispute.

I think you and I are in agreement on the price vs. quantity issue, at least under normal CB operating procedures (and I want to stress that I learnt most of this stuff from reading die-hard monetarists). Quantities only come into the picture with operations like QE and even then the important things are the quantity AND quality of the assets that matter i.e. altering the return on holding base money with IOR makes a big difference even if the CB is targeting an expansion of base money.

If monetarism is all about base money and the money multiplier, then I am not a monetarist.

@ Luis Enrique

You don't see any hypocrisy in engaging in an attack of a supposedly slippery statement by making even more slippery statements? Look at the title of the post. He's engaging in semantic argument -- and then dropping semantic stinkers all over the place himself. In my humble experience, attacks based on semantics -- which is what 1/3 of Nick's post is -- are usually attacks that try to undermine the language of an argument rather than dealing with the validity of the argument itself. It's a well-known rhetorical tactic to undermine your opponents credibility without dealing with substance.

My point is that I can easily pick away at Nick's language to undermine his credibility. But I recognise its a cheap shot and doesn't get anyone anywhere. It's not even clear WHO Nick is attacking. He doesn't source the statement. It appears to be something that cropped up in the comments section or something. An off-hand remark.

This whole post is very dodgy. And the fact that Krugman is using it as a sort of flotation device to allow him to save face is pretty... well... I won't say it...

Luis, your comment basically amounts to 'no you!'

I'm fully ready to admit I'm wrong. I don't have decades of intellectual investment in my paradigm. I don't have a reputation to maintain. But unfortunately I can't in good faith argue that the evidence squares with a money multiplier view of the world.

ok as much as i love a heterodox pool party, this isn't the place for it. If we wanted to denounce the people involved as stuck to their ideology we might as well never enter into discussion. Can we please leave the denunciations out? We still have a few points of argument to hash out and i would much rather do that then get into a public "who's more ideologically blind" masturbation contest. While I disagree with Nick on this and other points, I accept he's a good faith arguer and if you don't want to do that then you shouldn't engage.

I'm not so sure Nathan, I think Philip is right about Nick's constant referral to definitions/semantics rather than the substance of an argument is absolutely correct. It's pretty obvious.

But nevertheless, and this is also true, some of you shouldn't be making statements about mainstream economics when you know nothing of the criticisms of it. Just read up on the cambridge capital controversies first, and go on from there.


your comment basically amounts to 'no you!'

precisely. it's a daft sort of comment to make. don't make it.

Briefly skimming your comment, I think we are in agreement W Peden. Feels nice :).

I think Phillip made a good point but many comments have spiraled into a neoclassical/endogenous money bash fest. I disagree with the Neoclassical position ( i don't think the new keynesian position is all that different for this purpose i will subsume them, acknowledging that there are indeed differences) but this is a great opportunity to at least try to argue it out but all generalized bashing does is strengthen the hard liners and shut open minds.

wh10: you say the puppetmaster (cb) does not control the puppet (money supply, credit), the puppetmaster controls the strings (interest rates) which control the puppet. a distinction without a differwnce.

most people would agree money is endogenous if rates are fixed. most people would agree rates are endogenous if the money supply is fixed. the cb moves rates around, soetimes. the interesting question is wheyher the cb should control the ms or rates to hit its target (inflation, full employment) or none of the above

[it's also a pretty discourteous comment to make on the blog of somebody like Nick who is a positive outlier in his willingness to engage on substance with commentators who disagree with him]

Nick, some simple questions so I can get at the exact nature of the disagreement:

(1) Banks create loans and deposits simultaneously through double entry bookkeeping - agree/disagree? (If d you can skip to (4))

(2) Banks do not need deposits or reserves prior to this, at least in the short term, so the CB has to accommodate demand, else the economy grinds to a halt - a/d?

(3) This money creation adds to the total stock of money and so to nominal demand, making the rate of credit creation an important determinant of AD - a/d?

(4) Increasing base money does not necessarily translate into an increase in lending - a/d?

(5) But the CB can influence behaviour by controlling interest rates, or credible commitments to controlling interest rates - a/d?

DWB- I never used any of those vague metaphors. I'm trying to be very specific and use specific operational terminology to make a specific point. The CB de facto has to supply reserves at some interest rate. I never said "fixed" interest rates; but you and Nick and Krugman keep using this word and it suggests to me you aren't logically thinking through what Fed policy is ultimately doing EVEN over the longer term (past 6 weeks). W Peden gets it- it's always logically about price not quantity. And when you say whether the CB should control the MS or hit its target (inflation, full employment)- you still aren't getting it. The CB STILL has to provide reserves at some rate whatever its aspirations for monetary policy, or you risk the integrity of the payments system (reserves don't clear on purchase, people can't withdraw their deposits etc). You cannot say at any point in time that the CB will refuse to provide banks reserves. You and Nick are confusing long run policy with that of refusing to provide reserves. No - it is about CHANGING the interest rate on reserves in the long run- not refusing to provide reserves.

Note - Fullwiler even writes about how CBs can conduct monetary policy while actively changing the monetary base: "the Fed or any other central bank can only control the size of the monetary base directly by creating ... conditions that set interest on reserve balances equal to interest on t-bills." But it's about price, not quantity! This is in part about the *coherence* of one's explanation of CB policy. This I think is the most coherent way to think about it. The discussion of what is optimal CB policy is separate and up for much greater debate.

On the endogenous/exogenous question, may I suggest an analogy? I have a hedge that grows 1 inch higher per week and a gardener who cuts it back every 6 weeks. If I want to understand the behavior of hedges, I care about the 1 inch per week and if I want to understand the behavior of gardeners, I care how much it is cut back every 6 weeks.

Just because my gardener always chooses to cut my hedge back to the same height does not make the understanding of the growth irrelevant. For example, the gardener can trim back the average rate of growth as much as he wants, but he can never make it exceed 6 inches in 6 weeks. It also explains why my neighbor's hedge sprawls all over the place when he does not have a gardener.

It would be a little unfair to criticize somebody studying hedge growth by saying that in general hedges do not grow taller because the gardener always cuts my hedge back to the same height.


okay, but by changing the price the supplier changes the quantity, no?

that's probably succinct to a fault ... isn't the issue at hand here that it's misleading to think of the supply of money as just "demand determined" because there's a supplier whose wants have a role in determining "what actually happens" too. So whilst you are correct (I think) to say that the CB has to supply whatever the quantity demanded is at whatever interest rate it has chosen, it's choice of interest rate is a determinant of what actually happens (the supply of money) ... so it's still important not to overlook supplier whose wants have a role in determining "what actually happens".

wh10: no vague metaphors. we agree price and quantity cannot cannot be simultaneously determimed. i am relaxing the assumption that the cb targets rates (this is a choice the cb makes tp do). now what happens in mmt?

... and then i am saying, after interest rates float, the cb fixes reserves. interest rates float, the cb does NOT supply reserves elastically. then what, in mmt?

Nick: "One question for Scott; what happens when the 6 weeks are up, and the interest rate becomes an endogenous variable?"

I won't answer for Scott but *I* would say: that depends only on what happens to the bank's target. If inflation (or expectations thereof) have risen, the bank may hike the policy rate or indicate intention to do so. But nobody (except a few academic monetarists and apparently Paul Krugman :-) cares what happened to the base. The CB and the commercial banks couldn't care less, the former because the base has *zero* predictive value for future inflation (given current inflation, TIPS spreads, etc), and the commercial banks because regulation gives them zero reason to care. So who makes decisions that matter in the economy watches the money supply or cares about it, which is why it's time to eliminate it from our models.

If we were physicists we would long since have abandoned talking about stuff (quantity of money) that we can neither define or observe, and get on with the things that we can.  The NK model does that. Monetarism is mysticism; the alternative is scientific positivism and it's high time we learn it.

DWB- this isn't MMT. It's a much broader Post-Keynesian theory. Did you read Fullwiler's piece on the Krugman/Keen debate linked here? He answers your question, and I have already given the answer on the first page of this thread, and W Peden has recognized it. It comes down to understanding what this means for the integrity of the payments system.

Here: http://worthwhile.typepad.com/worthwhile_canadian_initi/2012/04/the-supply-of-money-is-demand-determined.html?cid=6a00d83451688169e20163038fbc97970d#comment-6a00d83451688169e20163038fbc97970d - see the passage from Fullwiler in that comment.

Luis Enrique: I don't believe the official academics used the term "demand determined," and if they did, they did not mean it in the way Nick Rowe is critiquing in his post. Perhaps commenters were inaccurate or overzealous. The description of Post-Keynesian endogenous money does not say that the CB cannot affect the money stock by changing the interest rate. Fullwiler makes that very clear that this is possible- but it's fundamentally price not quantity! This is VERY DIFFERENT than saying the CB can change the qty in a discretionary manner (without using IOR as Fullwiler notes).

And no- that's an inaccurate and misleading econ 101 way of thinking about changing the price. This is a complex matter to understand. Changing the quantity of reserves in a discretionary manner to change the price is the improper way to think about the fundamental underlying causal mechanism. You have to understand that open market operations are fundamentally defensive in nature. And I think Nick's Chuck Norris analogy, about not ever having to change qty to change the price b/c that threat exists, misses the point about the underlying causal mechansim. I think this is explained in a paper I linked to in this thread, which Nick helped edit! The mainstreamers and CB experts doing the relevant research have recognized for a relatively long time now that it's fundamentally about changing price not quantity, regardless of the type of CB being considered. I think I have even read Karl Whelan hammer on this point.

Start with the general case and then go to the US to avoid confusion. I've received this explanation from another banking expert:

"Think of a system with no RR and where the cb has the ability to perfectly offset changes to the its balance sheet, and where banks are perfectly certain they can end the day without an overdraft or there is no penalty for such an overdraft. This is basically Canada, not that they are a perfect general case, but the scenario above helps us understand as we adjust the assumptions.

First, with Canada, there are no reserve balances demanded overnight, whatever the interest rate, ever, as a result of these characteristics. The bank of Canada can adjust the target rate with no operations simply by announcing moves in the bid/ask rates. This is obvious. And in the long run, they don't have to provide any more/less reserve balances regardless of the target rate. Yes, on a day to day basis, they have to stand ready to buy/sell at the bid/ask prices, but those are cleared by the end of the day and the total qty of reserve balances circulating doesn't change. And we have several years of data that shows Canadian banks still hold 0 reserves within this particular system, regardless of the changes to the interest rate target that have occurred.

If you adjust the assumptions and add RR, you get a positive demand for reserve balances, plus perhaps a buffer to avoid any penalty on insufficient RR. Again, with a target rate change, the CB doesn't have to do more than announce--RR and the buffer don't change the moment a target rate changes. Yes, the cb has to stand ready to add/subtract reserve balances if the target doesn't move (either via operations or by setting the bid/ask), but these must be reversed within the maintenance period since RR were already set and/or preferences for deposits by the public that have RR don't change that quickly (all well estabilished in the literature). Now, later, the change in the target rate could be large enough to adjust preferences of the public for deposits vs. other assets, or raise/lower bank lending and thus deposits. In this case, as deposits change, the RR changes, too. And as RR changes, the CB must accommodate the increased demand for reserve balances that results or it won't achieve its target rate. But note that the change in the supply of reserve balances is in response to a later shift in the demand for reserve balances at the given target rate, not an exogenous change in the supply of reserve balances that moves along the demand for reserve balances to a new target rate.

And, most importantly, this entire series of events in the latter example is because of the imposition of reserve requirements--it is not something that is inherent to central banking (as many nations have no RR)--which themselves are well-known now to only be one possible way to stabilize and make predictable the demand for reserves in order to more easily achieve a target rate (not for control of the money supply)."

This all REALLY hammers home the point that it is fundamentally about price, not quantity. Yes it is subtle but it is *accurate* and does make a difference in thinking about policy and how it is implemented in the real world. Unless you think a central bank is going to completely ignore the payments system and banks’ needs for reserves, not set a discount rate, and let the interest rate on reserves shoot upwards without relent to theoretically infinity.


I suppose I should beware of Post Keynesians bearing gifts, but on this point we're agreement. I'm sure we COULD find plenty of macroeconomic propositions on which we disagree, but on this point we're on the same page.

It all goes back to a very basic principle of economics: a monopolist can control price or quantity but not both.

I agree that Nicks semantics discussion were a bit strange (but I do not agree with your examples – I would, generally, call a perfectly competitive market demand determined in the long run and a monopoly market supply determined in the short run.)

You probably heard statements like “a man was hit by a car” or “he fucked her”. The later statement signals something else than “he and she fucked each other” or “she fucked him”. Similarly, “a man and a car collided with each other” is not the same thing as “a car collided with a man” or “a man collided with a car”.

So – why would it be a problem to talk about e.g. a demand determined quantity in a perfectly competitive market? I mean, the supply curve (or the representative company) is just laying there, passively, being thrown around due to factors out of its control. Sure, both have to consent, but if one company says “hell no – I am leaving” there is a lot of other companies ready to take its place. On the other hand, if a consumer leaves, one of the existing companies will be without a partner (and do not say that the company should be satisfied with less, it is already living on the poverty line without any prospect of future rents).

However, when it comes to the bad ass monopolist, (s)he is clearly the one who is in control of the situation in the short run. If you are not married to a specific model, you will realize that the quantity on the market will depend on the monopolists strategy, while the consumer preferences (demand curve) stay pretty constant in the short run.

PS: Just realize that I should rewrite the things above from the perspective of “power”, which is sadly lacking in neoclassical economics, but I do not have the time right now.

Yes W Peden!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! Woohoo!!!!! I am sure we could disagree on a lot. I think we have in the past at this very place. Partly why it is refreshing to be in agreement with you :).

BTW Luis, Nick, et al, Fullwiler follows up on the point I am making and Krugman's response to his piece:

"Update: Paul Krugman has posted a reply to this post that is a straw man. He and Nick Rowe are viewing this all through the lens of the old Monetarist/Keynesian debates in which there was a choice b/n interest rate targets and monetary aggregate targets; the Monetarist critique assumed the Keynesians were going to keep interest rates at the same level forever and not change them. Once John Taylor came up with his “rule,” everyone agreed an interest rate target could work.

What we are talking about here is operational tactics–the CB can only target an interest rate. It cannot target a reserve balances or the monetary base directly. But that is different from strategy–that is, WHERE the CB puts its target and WHEN it chooses to change the target. There is NOTHING in anything I’ve ever said or anything any PK’er, MMT’er, etc., has ever said that suggests the CB can’t set the target wherever it wants whenever it wants. The point is that whatever the target is, THAT is what its daily operations defend directly, not a monetary aggregate, not the monetary base, not reserve balances. There is nothing in anything I’ve said that would preclude the CB from running a Taylor’s Rule type strategy, for instance, that responds at any point in time endogenously to the state of the economy. That is, the target rate is an exogenous control variable (i.e., it is necessarily set by the CB) that it sets endogenously in response to economic events."


I see this as a battle of logical coherence and robustness in thinking about CB operations. And it is the endogenous money people who have a more coherent and robust explanation on this point. Krugman isn't thinking it through the whole way, or is at least not being clear about it, and moving the goal posts, as Fullwiler notes.


looks to me like some talking at cross-purposes. If "official academics" don't think MS is demand determined in the sense Nick is taking issue with here, fine. If the cap doesn't fit don't wear it.

[I don't think I've written anything to suggest I believe in the causal mechanism you ascribe to me (an exogenous change in the supply of reserve balances that moves along the demand for reserve balances to a new target rate) by the way. The story you tell about how "the change in the target rate could be large enough to adjust preferences of the public for deposits vs. other assets, or raise/lower bank lending and thus deposits" sounds to me like what I had in mind when I wrote "[the CB's] choice of interest rate is a determinant of what actually happens" ]

@ Nemi

Nothing strange about Nick's semantics argument if you recognise why the rhetorical device was employed. It appears to have been deployed to undermine an unnamed commenter who, apparently, represents endogenous money theory as a whole. It's a rhetorical cheap shot. Krugman then links to it because he -- unconsciously or otherwise -- recognises that his prior comments about reserve requirements and money multipliers was wrong. The whole debate can then be compartmentalised and thrown in the bin. The ISLM stays intact. 'Crowding out' still means something even though the loanable funds model has been rubbished. And Krugman's interpretation of the liquidity trap (which is inconsistent even in its own terms) remains a trendy explanation for the current stagnation. Go home folks, nothing to see here.

Regarding the definitions, I pulled them from Wikipedia. They look close enough to the textbook definitions to me. In perfectly competitive markets, according to neoclassical theory, prices are set my the interaction between supply and demand. In monopoly markets there is no supply curve. Price is set by the monopolist and the quantity sold is determined by the level of demand for the good/service in the economy at that preset price. This is precisely what endogenous theorists claim with regards to the quantity of money in a system where the central bank uses interest rate targeting. If Nick found the statement he 'deconstructs' in his post difficult to understand he could have looked elsewhere -- or he could have emailed one of the endogenous theory writers. But that wasn't what the semantic argument was about. As I said, it was a rhetorical device. A cheap shot. And anyone who looks at it disinterestedly will see it as just that.

Determinant is, as usual, correct about LTVS. But the statement "no RTGS in Canada" has mislead Sergei.

Payments made with LTVS are made in real time. Once made, the are irrevocable, and have zero probability of failing. A payment can be spent immediately after it has been received. Two entities who are not members of the LTVS can transfer large sums between each other in real time with 100% confidence through the agency of LTVS members.

What is settled daily are the net balances of LTVS members - obviously you cannot net without a time interval over which to accumulate payments. How can payments be guaranteed in real time when they are net settled hours later? There are three components to the guarantee.

First, the net position of every LTVS member is tracked in real time, payment by payment, and every member has both unilateral and multilateral limits on its net exposure. It is impossible to initiate a payment that exceeds these limits. LVTS members have the ability to set bilateral limits with each other.

Second, every LTVS member must post collateral daily; the total amount of this collateral is set so that it is at least enough to cover the largest possible net exposure of any one member. Should that member fail, the collateral posted by the other members is the first recourse.

Finally, the Bank of Canada is contingently liable to cover the excess exposure over the collateral account should more than one member fail simultaneously. It is able to guarantee this completely because it can create money as required.

@dwb:I think your 11.03 comment were very clearly written, so I am going to steal the format.

The puppetmaster (cb) does not control the puppets (money supply, credit, aggregate demand, investments, inflation), the puppetmaster controls the strings (interest rates) which have an effect on the puppets.

Most people would agree money is endogenous if rates are fixed. CB sets an interest rate – thus, money is endogenous.

The interesting monetarist question is not what instrument the CB should use. Technological development has made it pretty much impossible to control anything through some money supply rule. Every modern CB sets the interest rate.

The interesting monetarist question is what the CB should target (inflation, unemployment, NGDP) and which interest rate (rule/path) they should adopt to achieve it (possible sprinkled with some unconventional monetary strategies for the lower zero bound)

Philip Pilkington:

1. I wasn't even pretending to *define* supply and demand.

2. Wiki is wrong on the definition of supply. Yes I know it's the same as Greg Mankiw's definition, but that's wrong too, as can be seen if a price floor puts price above market-clearing and you ask if the sellers *are able* to sell what they are willing to sell. (Yes, I'm being picky here).

3. Wiki is correct that a *profit-maximising* monopolist doesn't have a supply *curve*, because quantity supplied is a function of the elasticity of demand, and not just price alone, but it still has a supply *function*, which includes elasticity of demand as one of its argument.

4. Yes I am being picky about semantics in this post, because sometimes it matters. And it matters a lot in this case, because if I say "suppose the Bank of Canada changes the supply of money" and someone reads "supply" as a number, and says the Bank of Canada doesn't set the supply of money, we will be arguing at cross-purposes. Plus, I rephrased the other side's position to make it semantically correct, so I was not attacking a straw man.

5. Mind your manners please, on my blog posts.

@ Nick Rowe

You didn't source the quote. The quote "The supply of money is demand-determined" is not what Fulwiller or Keen said, as far as I can see. So, it's not clear whose semantics you're attacking.

My point is that I can attack your post semantically if I want -- and it wouldn't be hard; it rarely is because once you deal with semantics you no longer have to take other people's arguments in good faith; you don't have to try to see the substance of what they mean. But I don't think its a valid method of argument. It aims at the language of the argument rather than the substance.

I don't think I'm being remotely rude here. This is a well-known rhetorical tactic. Remember the Sophists? That's what they used to do. They would pick at linguistic constructions rather than engage with the substance of the argument.

@Phil Koop:

Thanks, my thoughts exactly.


All the pertinent details are contained in that book about the Canadian Payments Association. We have a Deferred Net Settlement System, as Phil so ably said, and that choice was based on institutional preference and cost.

Actually, I just did a Google search of:

"The supply of money is demand-determined"

Only got one clean hit. This blog. Closest I got from the PK crowd was from an academic paper by DI Fand:

"..the supply of money as horizontal at a given interest rate, and the stock of money is therefore completely demand determined."

Someday, maybe the neoclassicals will actually debate the endogenous money people. Someday.

I have to admit, I found this post pretty tricky to disentangle. I'm also not convinced that demand and supply curves easily capture the nuances. But it seems to me Nick's argument is thus:

- on a six week time horizon, the money stock is "demand determined", in the sense that the BoC sets an interest rate at which it supplies reserves on demand

- on a longer time horizon, the BoC targets inflation, and adjusts the policy rate to hit the target. The short run horizontal supply curve thus moves up/down as necessary

- therefore, in the long run, the money stock in inflation elastic, in that the BoC is happy to let it rest at whatever level is consistent with the inflation target

So far so good. I understand this as saying that while the money stock is endogenous, in the sense that reserves are supplied at the prevailing policy rate according to demand, the inflation target is in fact a form of meta-constraint on money growth, as too high/low a level of inflation relative to the target will induce rate changes that affect money growth. This all seems pretty straightforward, and I don't really see a problem accepting this broad argument.

But - I don't see any particular reason to believe that a given inflation target implies a unique (or more weakly, a predictable) path of money growth. The inflation-consistent level of money growth could surely depend on many factors .... structural changes in the credit markets, behavioural changes that induce velocity changes, or indeed the impact on inflation of other factors such as commodity price changes, or smaller/larger fiscal impulse from government spending.

Oh, and just to add to my post above ... if the economy is has slack, underused capacity, a monetary expansion does not necessarily imply proportionate price rises. What am I failing to get here ?

@nemi (1:10pm): yes, the intersting question is what the target should be and what instruments the cb should use.

@wh10: i dont see the answer in any of Fullwiler's posts. They say the cb chose interest rate targeting to minimize volatility at the maturities relevant for economic decisions. great. I agree. The question posed is: Assume the cb no longer targets rates (which many people would say the cb should not do) and instead targets reserves, HOW does the target rate affect the aggregate amount of credit/savings/investment/consumption in the economy. Since the quote seems to indicate that interest rates become volatile, that must mean reserves become scarce.

Interestingly, Fullwiler says: "Absent interest on reserves at the target rate, a central bank would not be able to achieve its target rate if it employed the money multiplier model and tried to directly target reserves."

is this the loophole in MMT? can the CB employ the hot potato effect (money multiplier) if it employs interest of reserves?

Sounds pretty orthodox to me: the central bank can target reserves and its target rate if it also pays interest on reserves (interest on reserves controls demand).

@Nick, I think you forgot that it is a decision on the part of the monetary authorities where to set the overnight interest rates always. You are used to thinking of it in terms of a response to economic conditions, taylor rule or whatever, but if you go a step back, they chose to use that rule, they were not forced to by markets. It always is a choice, now six weeks from now, a year from now whatever.

Now stepping forward, there were attempts in the US and UK by the monetary authorities to target the monetary base. They failed for reasons you should know by now after all of our discussion. I did a little research and found the moment when the Volker Fed realized it was futile to hit their MB target, they missed it by a long shot and nearly broke the payment system (the fed funds rate spiked to 26% some days with a zero with no bid offer!), all they can do is hope to influence the MB with their choice of interest rate:


MR. WALLICH. Do you use a monthly model or do you use some
relationship between the funds rate and the level of borrowing?
MR. STERNLIGHT. I don't think it's that--
CHAIRMAN VOLCKER. We don't have that pseudo-precision.
CHAIRMAN VOLCKER. The Desk can't [adjust] in the short run. It's fixed. In a sense they could do it over time if people are borrowing more, as they may be now. They seem to be borrowing morethan we would expect, given the differential from the discount rate. But in any particular week it is fixed.
MR. ROOS. Do we have to supply the reserves?
CHAIRMAN VOLCKER. We have to supply the reserves.
MR. ROOS. [Why] do we have to supply the reserves? If we did not supply those reserves, we'd force the commercial banks to borrow or to buy fed funds, which would move the fed funds rate up. What is lurking in the back of my mind is this: Are we, in effect, frustrating our ability to achieve what we want with the aggregates and with reserves because of possible concern about fluctuations in the fed funds market? In other words, do we accommodate that problem?
CHAIRMAN VOLCKER. We can force [the depository institutions] to borrow more in a given week, but we can't force the level of reserves lower.
MR. WALLICH. Yes, but by forcing them to borrow more, we are raising the funds rate. And the question here is: Are we in that more distant sense back on a funds rate target?
MR. ROOS. You said it, Henry!
MR. AXILROD. Governor Wallich, as you know, with lagged reserve accounting there is simply nothing we can do in the current week other than determine the level of free reserves in the banking system with open market operations, given required reserves. And to the degree that there is a relationship--and it's pretty loose these days--between free reserves and interest rates, we are in some sense in the short run determining the funds rate. But in the longer run, of course, it's the market movement in the money supply relative to our target that will determine the funds rate.
And of course to quote Wray "In many nations, such as Canada and Australia, the promise of an overdraft is explicitly given, hence, there can be no question about central bank accommodation because banks can borrow reserves on demand at the central bank’s target interest rate.
I think we've established pretty what a CB can and can't do with regard to interest rates and monetary base. We've established what CBs actually do! Have we mystics made our case yet?

rjw: "But - I don't see any particular reason to believe that a given inflation target implies a unique (or more weakly, a predictable) path of money growth. The inflation-consistent level of money growth could surely depend on many factors .... structural changes in the credit markets, behavioural changes that induce velocity changes, or indeed the impact on inflation of other factors such as commodity price changes, or smaller/larger fiscal impulse from government spending."


"... if the economy is has slack, underused capacity, a monetary expansion does not necessarily imply proportionate price rises. What am I failing to get here ?"

Not much. You could argue that a monetary expansion would imply proportionate price rises *relative to what would have happened otherwise* (which could have been price falls).

OK, inflation has been higher in several euro member state then the ECB rate. If you argue that interest rate is endogenous variable, then is It endogenous variable in Euro member states too?

Kristjan: Roughly speaking (e.g. ignoring risk, which is rather hard at the moment!), it's exogenous wrt a small individual Eurozone country. It's endogenous for the Eurozone as a whole.

Tschäff Reisberg,

The UK did attempt to target the monetary base (M0) but not when most people think they did and not as an exercise in monetary base control. M0 targets had their greatest period of prominence from late 1985 to early 1988, when M0 was used as an indicator; the demand to hold M0 was falling rapidly at the time and it was hopeless in indicating the overheating in the UK economy that began in 1986.

The monetary base played almost no role in the chief failure of the monetarist period in the UK, which was 1980. At that time, the (broad) money supply was supposed to be targeted primarily through fiscal policy and interest rates. Significantly, there was a move away from quantitative control in this period, which (along with deregulation) was a key factor in the exceptional change in the demand for money in the 1980-1981 period as there was "re-intermediation" back into M3 and M4 balances.


Thanks for the link - it's fascinating. I don't think it proves what you think it does, but thanks!

Nick, when people say that the money supply is demand determined, they aren't talking about the 'demand for money'. They are referring to the effective aggregate demand of the economy. When the economy is growing quickly (i.e. there is growth in aggregate demand) then some of that demand will be satisfied by an increased demand for credit and those loans will in the first instance be delivered in the form of a bank deposit. This is why post-Keynesian economists argue that it isn't money supply that determines inflation any relationship between the two is a product of both money supply and inflation being response to aggregate demand. Prices are set by supply and demand. If the total demand within an economy for some goods, services or resources exceeds the economy's ability to satisfy that demand (the capacity to supply goods, services or resources), then prices of those goods, services or resources will rise.

David: "Nick, when people say that the money supply is demand determined, they aren't talking about the 'demand for money'. They are referring to the effective aggregate demand of the economy."

Hmmm. Are you sure? Why don't they just say "The stock of money is determined by Aggregate Demand"?

Nick: "Are you sure? Why don't they just say "The stock of money is determined by Aggregate Demand"?

Others may disagree, but in my view monetary aggregates aren't usually seen as very important by post-Keynesian economists (more a symptom than a cause). And the 'demand' for how much people hold in what we arbitrarily denote as money rather than longer-term financial obligations isn't a determinant or demand or pricing, and therefore not a very meaningful statement. The furthest someone who claims to believe in the endogeneity of money might be willing to push it is that money is 'largely' determined by the 'demand for credit', but again that is just a proxy for effective aggregate demand. Chapters 2 through 4 of 'A handbook of alternative monetary economics", which is a collection of papers on monetary economics edited by Philip Arestis and Malcolm C. Sawyer, are the best place to get a more definitive answer.

The comments to this entry are closed.

Search this site

  • Google

Blog powered by Typepad