Can banks individually create money out of nothing? — The theories and the empirical evidence

Werner, Richard A.

doi:10.1016/j.irfa.2014.07.015

Cited by 249 publications

(150 citation statements)

References 32 publications

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“…Although the model is not directly employed for policy analysis in the present paper, the dynamics observed in the baseline and the results of our sensitivity example confirms the topicality of the arguments proposed in order to justify our modelling approach and stress the pivotal importance of the credit creation theory of banking in a macroprudential policy perspective, in line with the recent empirical evidence provided by Werner (2014), Werner (2015. These works highlight that the currently prevalent financial intermediation theory of banking, assuming that banks collect deposits and then lend these out, just like other non-bank financial intermediaries, have no empirical foundation.…”

Section: Robustness Checkssupporting

confidence: 80%

Agent based-stock flow consistent macroeconomics: Towards a benchmark model

Caiani

Godin

Caverzasi

et al. 2016

Journal of Economic Dynamics and Control

267

167

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a b s t r a c tThe paper moves from a discussion of the challenges posed by the crisis to standard macroeconomics and the solutions adopted within the DSGE community. Although several recent improvements have enhanced the realism of standard models, we argue that major drawbacks still undermine their reliability. In particular, DSGE models still fail to recognize the complex adaptive nature of economic systems, and the implications of money endogeneity. The paper argues that a coherent and exhaustive representation of the inter-linkages between the real and financial sides of the economy should be a pivotal feature of every macroeconomic model and proposes a macroeconomic framework based on the combination of the Agent Based and Stock Flow Consistent approaches. The papers aims at contributing to the nascent AB-SFC literature under two fundamental respects: first, we develop a fully decentralized AB-SFC model with several innovative features, and we thoroughly validate it in order to check whether the model is a good candidate for policy analysis applications. Results suggest that the properties of the model match many empirical regularities, ranking among the best performers in the related literature, and that these properties are robust across different parameterizations. Second, the paper has also a methodological purpose in that we try to provide a set or rules and tools to build, calibrate, validate, and display AB-SFC models.& 2016 Elsevier B.V. All rights reserved. Is the economic crisis a crisis for macroeconomics?More than eight years since the onset of the global financial crisis we are still assessing how the crisis should change our view about macroeconomics. The crisis cast serious doubts on the plausibility of standard macroeconomic models -in particular of dynamic stochastic general equilibrium (DSGE) models -and their ability to provide effective policy advices to prevent the occurrence of large-scale economic turmoils, and to tackle their consequences.In a nutshell, the anatomy of the standard DSGE model presents an economy composed of different types of representative agents, such as households and firms, maximizing in a infinite lifetime horizon an objective function subject to an inter-temporal budget constraint. The first order conditions yield a fully state-contingent plan for the representative agents

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Section: Robustness Checkssupporting

confidence: 80%

Agent based-stock flow consistent macroeconomics: Towards a benchmark model

Caiani

Godin

Caverzasi

et al. 2016

Journal of Economic Dynamics and Control

267

167

View full text Add to dashboard Cite

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“…Thus, debt is the more general concept. In fact, a loan can consist of money that already exists (usual definition), or of money that is created at the time the loan is made, which is how banks create money (Wray 1990;Douthwaite 1999;Ingham 2004;Werner 2014). For any debt, the collateral guarantees to the lender that if the debt is not repaid the value of what was lent is not lost.…”

Section: A Monetary Theory Perspective On Mutual Creditmentioning

confidence: 99%

Self-Funded Social Impact Investment: An Interdisciplinary Analysis of the Sardex Mutual Credit System

Motta

Dini

Sartori

2017

Journal of Social Entrepreneurship

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Sardex is an electronic B2B mutual credit system that has been operating on the island of Sardinia since 2009 as a complementary currency. In contrast to other funding mechanisms, it allows private funding driving social and environmental impact to be endogenously generated within a given geographically limited socio-economic context, rather than injected from exogenous sources. By drawing on different strands of monetary theory, sociology and anthropology, we argue that mutual credit is central to a form of social finance and social impact investment that we identify with sustainable development, i.e. stable and constructive integration of market activity with democratic institutions and socio-cultural values and structures. The empirical basis of the paper consists of approximately thirty semi-structured in-depth interviews of Sardex circuit members and founders over 4 years. We conclude that Sardex as a collective social enterprise is best understood through an interdisciplinary perspective that demonstrates its sustainability through the different levels of its workings and its strengths as a hybrid multilayered system.

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“…8 This is possible since they can create money out of thin air through simple account entries -something Richard A. Werner (2014) has proven with an empirical test. When making loans, commercial banks just expand their balances by adding deposits to their liabilities and adding loans to their assets.…”

Section: Money Creation In Realitymentioning

confidence: 99%