Central Banking and Post-Keynesian Economics
- 9 October 2007
- journal article
- research article
- Published by Taylor & Francis Ltd in Review of Political Economy
- Vol. 19 (4), 539-554
- https://doi.org/10.1080/09538250701622402
Abstract
The Post-Keynesian theory of endogenous money has given much attention to the role of the central bank in the money creation process. Circuit theory has neglected this role, in so far as it has focused on the relationship between banks and firms within a monetary production economy. The aim of this paper is therefore twofold. First, it intends to fill this gap in circuit theory, by providing a role for the central bank in settlement of interbank debts. Secondly, it aims at reinforcing the Post-Keynesian analysis of central bank money by considering both the money-purveying and the credit-purveying roles of the settlement institution in the interbank market. The result of this analysis is a more comprehensive theory of endogenous money, where the lender-of-last-resort facilities of a central bank are viewed as an endogenous phenomenon involving both a money creation and a credit operation between the central bank and the domestic banking system. In such a framework, monetary policy consists of setting the base rate of interest at a level that enables banks to limit their bilateral debt position in the interbank market, so as not to disrupt the workings of the payment system by either an illiquidity or an insolvency crisis.This publication has 14 references indexed in Scilit:
- The Monetary Theory of ProductionPublished by Cambridge University Press (CUP) ,2003
- Post Keynesian Approaches to Endogenous Money: A time framework explanationReview of Political Economy, 2003
- The role of the state and the hierarchy of moneyCambridge Journal of Economics, 2001
- Reconciliation of the Supply and Demand for Endogenous MoneyJournal of Post Keynesian Economics, 1997
- HORIZONTALISM, STRUCTURALISM, LIQUIDITY PREFERENCE AND THE PRINCIPLE OF INCREASING RISKScottish Journal of Political Economy, 1996
- A Post Keynesian Theory of Credit RationingJournal of Post Keynesian Economics, 1996
- Money in MotionPublished by Springer Science and Business Media LLC ,1996
- The Endogenous Money Supply: Consensus and DisagreementJournal of Post Keynesian Economics, 1991
- Two Theories of Money Supply Endogeneity: Some Empirical EvidenceJournal of Post Keynesian Economics, 1991
- Money Supply Endogeneity: “Reserve Price Setting” or “Reserve Quantity Setting”?Journal of Post Keynesian Economics, 1991