Endogenous Money in a Coherent Stock-Flow Framework

Jerome Levy Economics Institute Working Paper No. 325

11 Pages Posted: 28 Mar 2001  

Marc Lavoie

University of Ottawa - Department of Economics

Date Written: March 2001

Abstract

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.

Suggested Citation

Lavoie, Marc, Endogenous Money in a Coherent Stock-Flow Framework (March 2001). Jerome Levy Economics Institute Working Paper No. 325. Available at SSRN: https://ssrn.com/abstract=265113 or http://dx.doi.org/10.2139/ssrn.265113

Marc Lavoie (Contact Author)

University of Ottawa - Department of Economics ( email )

120 University street
Ottawa, Ontario K1N 6N5
Canada

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