Intermediation, Money Creation, and Keynesian Macrodynamics in Multi-agent Systems

William Gibson and Mark Setterfield

Review of Political Economy, 2018, vol. 30, issue 2, 154-171

Abstract: This paper offers a simple computational model of monetary creation, derived from individual agent behavior, that provides additional support for the well-known and more or less universally accepted idea that money creation is inevitable in demand-driven Keynesian economies. The endogeneity of money is linked to asynchronous production, in which investment is set autonomously by a combination of animal spirits and capacity utilization, while savings adjusts to bring about macroeconomic equilibrium. It is seen that once these Keynesian motifs are translated into the agent-based framework, endogenous money arises as a natural consequence of the model. The contribution of the paper is twofold. First, it links endogenous money creation to decision making in real historical time—two shibboleths of post-Keynesian macroeconomics. Second, it suggests a fruitful cross-fertilization between post-Keynesian economics and the methods of agent-based modeling.

Date: 2018
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Working Paper: Intermediation, Money Creation, and Keynesian Macrodynamics in Multi-agent Systems (2015)
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DOI: 10.1080/09538259.2018.1458494

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