Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/181475
Authors: 
Lavoie, Marc
Reissl, Severin
Year of Publication: 
2018
Series/Report no.: 
FMM Working Paper 17
Abstract: 
We present a simple stock-ow consistent (SFC) model to discuss some recent claims made by Angel Asensio in the Journal of Post Keynesian Economics regarding the relationship between endogenous money theory and the liquidity preference theory of the rate of interest. We incorporate Asensio's assumptions as far as possible and use simulation experiments to investigate his arguments regarding the presence of a crowding-out effect, the relationship between interest rates and credit demand, and the ability of the central bank to steer interest rates through varying the stock of money. We show that in a fully-specified SFC model, some of Asensio's conclusions are not generally valid (most importantly, the presence of a crowding-out effect is ambiguous), and that in any case, his use of a non-SFC framework leads him to ignore important mechanisms which can contribute to a better understanding of the behaviour of interest rates. More generally, this paper hence once more demonstrates the utility of the SFC approach in research on monetary economics 1930s.
Subjects: 
Horizontalism
structuralism
endogenous money
interest rates
stock-flow consistency
JEL: 
E5
E12
E40
E43
Document Type: 
Working Paper
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