The Endogenous Money Supply: Theory and Evidence

Abstract

Thus far, the focus of inquiry has been on the effect of price level adjustment on aggregate demand and supply, and on the ability of price and nominal wage adjustment to ensure full employment equilibrium. During the course of this inquiry the financial sector has been restricted to the background, and quantities of financial assets and liabilities have been taken as given. It is now time to turn to an investigation of the financial sector, and examine how the money supply and other financial magnitudes are determined. Later, in Chapter 9, this examination of the financial sector will be joined with our earlier examination of the operation of goods markets to provide a full Post Keynesian model of the determination of the level aggregate economic activity.

This chapter was previously published as “Competing Views of the Money Supply: Theory and Evidence”, Metroeconomica, 45 (1994).