The Nature and Role of Monetary Policy When Money is Endogenous

Posted: 29 Feb 2008

See all articles by Philip Arestis

Philip Arestis

University of Cambridge - Department of Land Economy; Universidad del País Vasco (UPV/EHU)

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Date Written: November 2006


This paper considers the nature and role of monetary policy when money is modelled as credit money endogenously created within the private sector. There are currently two schools of thought that view money as endogenous: one has been labelled the 'new consensus' in macroeconomics, and the other is the Keynesian endogenous (bank) money approach. The paper first explores the analysis of monetary policy in the 'new consensus' macroeconomic model, followed by an examination of the effectiveness of monetary policy in that analysis. The Keynesian view of endogenous money is discussed, and the role for monetary policy in a Keynesian endogenous monetary policy analysis is considered, including discussion of the objectives and instruments of monetary policy.

Keywords: Interest rate policy, 'New consensus', Endogenous money, Role of monetary policy

Suggested Citation

Arestis, Philip, The Nature and Role of Monetary Policy When Money is Endogenous (November 2006). Cambridge Journal of Economics, Vol. 30, Issue 6, pp. 847-860, 2006. Available at SSRN: or

Philip Arestis (Contact Author)

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

Universidad del País Vasco (UPV/EHU)

Barrio Sarriena s/n
Leioa, Bizkaia 48940

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