Beyond the Static Money Multiplier: In Search of a Dynamic Theory of Money

Michele Berardi

Chapter 1 in Artificial Markets Modeling, 2007, pp 3-16 from Springer

Abstract: Abstract Though we all live in a monetary economy where credit money plays a fundamental role, the process through which money is created in the economy is largely neglected by modern macroeconomic theory. A common approach maintains that the process starts with an exogenous increase in the monetary base made by the central bank, and that this, through a fixed multiplier, gives rise to a proportional increase in the amount of money in the economy. The multiplier is usually taken as constant in this process, at least on short time scales, and most importantly, independent from the money creation process itself. The result is essentially a static, aggregate theory, with very poor behavioral micro-foundations, that completely neglects the process through which money is generated in an economy.

Keywords: Central Bank; Cash Holding; Monetary Aggregate; Monetary Base; Sandpile Model (search for similar items in EconPapers)
Date: 2007
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DOI: 10.1007/978-3-540-73135-1_1

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