Reflections on the reconciliation problem

Ondøej Lopušník ()
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Ondøej Lopušník: Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic, http://ies.fsv.cuni.cz/

No 2011/12, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: This paper deals with the so called problem of reconciliation, a contentious and puzzling issue in Post Keynesian monetary theory. The crux of the matter is the question of mechanisms that would reconcile the loan-created supply of deposits with the willingness of agents to hold these deposits. The paper reviews and comments on the solutions proposed so far and argues that the reconciliation problem might not be eliminated entirely. The argument is twofold. First, it is argued that the income multiplier and Kaldor-Trevithick reflux mechanism cannot do the trick. Second, certain factors affecting the mechanism based on changes in relative interest rate differentials are identified that might preclude the mechanism from working as envisaged by its proponents. If this is the case, what we are left with is the concept of convenience lending.

Keywords: convenience lending; endogenous money; Post Keynesian economics; reconciliation problem (search for similar items in EconPapers)
JEL-codes: B50 E12 E51 (search for similar items in EconPapers)
Pages: 17
Date: 2011-04, Revised 2011-04
New Economics Papers: this item is included in nep-pke
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