Banking theories and Macroeconomics

Claudio Sardoni () and Antonio Bianco
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Antonio Bianco: Dipartimento di Scienze Sociali ed Economiche, Sapienza University of Rome (Italy).

No 3/17, Working Papers from Sapienza University of Rome, DISS

Abstract: The recently expanding macro-financial literature is facing the analytical challenge to analyse the working of modern market economies without losing touch with the factual role played by financial institutions. Mainstream macroeconomic models that embody a financial sector are characterized by the understanding of banks as intermediaries of loanable funds (deposit-taking paving the way for loan extension). This approach to banking is increasingly considered as a major flaw in macroeconomic thinking. The Post-Keynesian theory of inside money creation is gaining momentum even in mainstream circles. The present article highlights the key differences of these alternative doctrines from a money supply perspective, so to stress the key aspects of the monetary dimension of the so-called financial cycle and the fact that monetary policy alone has no impact on aggregate expenditure.

Keywords: Financial Cycle; Money Supply; Banking; Inside Money; Liquidity Risk. (search for similar items in EconPapers)
JEL-codes: E44 E51 (search for similar items in EconPapers)
Date: 2017-02
New Economics Papers: this item is included in nep-hpe, nep-mac, nep-mon, nep-pay and nep-pke
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Journal Article: Banking theories and macroeconomics (2018)
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