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Gerasimos Soldatos () and Erotokritos Varelas

The International Journal of Business and Finance Research, 2015, vol. 9, issue 5, 93-102

Abstract: This paper argues the predictive power of the sectoral approach towards a quantity theory of credit is weak. A quantity theory of commercial-bank-seigniorage approach is proposed in its place. It suggests that the financial system may be held responsible for price and output fluctuations to the extent commercial bank seigniorage alters the stock of money in circulation. If not, the financial sector can become the source of instability by influencing profitability in the real sector through a Goodwin-type interaction. These trends could be countered by an interest rate rule based on deposit habits and on the deposit rate, and supplemented perhaps by a policy of influencing these habits and manipulating the deposit rate

Keywords: Quantity Theory; Credit Theory; Commercial Bank Seigniorage; Instability (search for similar items in EconPapers)
JEL-codes: E3 E4 E5 (search for similar items in EconPapers)
Date: 2015
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Handle: RePEc:ibf:ijbfre:v:9:y:2015:i:5:p:93-102