The role of liquidity preference in a framework of endogenous money

Marco Missaglia and Alberto Botta

No PKWP2015, Working Papers from Post Keynesian Economics Society (PKES)

Abstract: In this paper we build a simple, almost pedagogical, Keynesian model about the role of liquidity preference in the determination of economic performance. We assume a world of endogenous money, where the banking system is able to fix the interest rate at a level of its own willing. Even in this framework, we show that the Keynesian theory of liquidity preference, while obviously not constituting anymore a theory for the determination of the interest rate, continues to be a fundamental piece of theory for the determination of the level and evolution of aggregate income over time, both in the short and in the medium run. However powerful, the banking system and monetary authorities are not the deus ex-machina of our economies and financial markets are likely to exert a permanent influence on our economic destiny.

Keywords: Liquidity preference; endogenous money; finance dominance (search for similar items in EconPapers)
JEL-codes: C62 E12 E44 (search for similar items in EconPapers)
Pages: 26
Date: 2020-07
New Economics Papers: this item is included in nep-hme, nep-mac, nep-mon and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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