Money creation in the modern economy: an appraisal

Jacob Stevens
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Jacob Stevens: Trinity Hall, University of Cambridge, UK

Review of Keynesian Economics, 2021, vol. 9, issue 1, 43-60

Abstract: This paper models a representative bank, and uses this model to explore the assumptions and implications of a selection of money-creation theories. It is shown that the money-supply process tends toward the logic of exogeneity as banks' fears about liquidity stress increases. At present, banks do not fear liquidity stress because central banks are operating under a floor system with a superabundance of reserves following unsterilized quantitative easing. Secondly, a role for a ‘central-bank digital currency’ is suggested as a useful complement to reserves policy in an economy with large or collusive banks.

Keywords: money supply; credit; monetary policy; interest rates; Post-Keynesian; Neoclassical (search for similar items in EconPapers)
JEL-codes: E12 E13 E43 E51 E52 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:elg:rokejn:v:9:y:2021:i:1:p43-60

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