Endogenous interest rate with accommodative money supply and liquidity preference

Angel Asensio ()
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Angel Asensio: CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique

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Abstract: The paper offers theoretical discussion and modelling showing that -in accordance to the post Keynesian approach to endogenous money- the credit-worthy demand for loans determines the supply of loans at the prevailing interest rate, while -in accordance with Keynes's liquidity preference theory- the rate of interest is endogenously determined as to equalize the demand and supply of liquidity-money in terms of stocks. As a consequence, the markup reflected in the spread between the central bank refinancing interest rate and the market interest rate is endogenously determined by the total demand and supply of liquidity-money. The paper also argues that, while the central bank effectively controls the base interest rate, additional conditions are required to control the liquidity-money market interest rate, owing to the conventional nature of the rate of interest Keynes pointed out.

Keywords: Accommodationism; Credit-money; Endogenous money; Horizontalism; Interest rate; Liquidity preference; Monetary policy; Verticalism; Structuralism (search for similar items in EconPapers)
Date: 2019-03-08
New Economics Papers: this item is included in nep-mon
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01231469v2
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