Alternative money theories: a G7 testing

Post Keynesian Theory and Evidence of Money Supply Endogeneity: A Review Essay

“…They used quarterly data for the sample periods of ten years, ranging from 1997 to 2006. Listed are among the major outcomes of their study: The endogeneity money supply hypothesis of the Post Keynesian economics is supported in part by Accommodationists view but differ from those of Structuralist and Liquidity Preference theories; The results from money transmission mechanism analysis suggested that, long term money supply effects price levels, while production was detected to have influenced interest rates during the sample period of the study; and Among the latest empirical works examining the theory of money supply endogeneity is the one by Panagopoulos and Spiliotis (2008). Based on the objective of presenting "the ways different schools of economic thought approach the money supply process -that is, the money-income relationship as well as the money multiplier model" (p. 601).…”

“…• Panagopoulos and Spiliotis (2008), the causal relationship between bank credit (BC) and monetary base (MB) should be unidirectional, in the sense that it is BC that causes changes in MB (Nell, 2000;Panagopoulos & Spiliotis, 2008).…”

“…According to Structuralism, although economic agents and firms play an important role in the economic system, the central bank is a significant player and has the privilege to deny accommodation of reserve needs and consequently resist credit expansion (Panagopoulos & Spiliotis, 2008).…”

“…Based on the aforementioned premise, Liquidity Preference (LP) economists, hypothesize that: The causal relationship between BC and MA is bidirectional (feedback rule): In the first case of the causality that BC causes MA is based on the assumption that money is endogenously determined. The reverse assumption (that MA causes BC) is based on the theory of an "effective amount of deposits held," representing the existence of an independent demand for money (Panagopoulos & Spiliotis, 2008); The entire LP reconciliation mechanism challenges the stability of the credit multiplier and is expected to produce feedback effects between itself (MMPR) and bank credit (Nell, 2000); and The relationship between money income (or GDP) and the "effective amount of deposit held" (e.g., M1, M2), underlined the following: First, LP theorists like other Post Keynesians, accepted that loans are demand driven and therefore we can infer that they partially recognize the "income causes money" process. Second, as Howells's (1997, p.433) reconciliation mechanism puts it, when people have particular preferences in holding wealth (e.g., deposits), this "causes them to rearrange their portfolios with consequences for prices, output, interest rates, and so on".…”

Modelling Banks' Lending Behaviour in a Capital‐regulated Framework

“…Moore, 1988, 1989). The diminishing role of agents' deposits, due to the gradual abandonment of the minimum reserve requirements (Dow, 2006; Lavoie, 2006; Rochon and Rossi, 2011) and the lack of a convincing link between loans and deposits (Panagopoulos and Spiliotis, 2008), revisited the money supply debate. Specifically, by examining the liability side of a bank balance sheet, there is an important variable that is usually neglected in the money supply literature, i.e.…”