Households’ liquidity preference, banks’ capitalization and the macroeconomy: a theoretical investigation

Marco Missaglia and Alberto Botta

No 10, Working Papers from SITES

Abstract:

In this paper we build a simple model on the role of liquidity preference in the determination of economic performance. We postulate, for the sake of the argument, a purely “horizontalist” environment, i.e., a world of endogenous money where the central bank is able to fix the interest rate(s) at a level of its own willing. We show that even in such a framework liquidity preference, while obviously not constituting anymore a theory for the determination of the interest rate, continues to be a key element for the determination of both the level and evolution over time of aggregate income and capital accumulation. In our model, this happens because of the working of a mechanism so far unexplored in the literature, i.e., the endogenous variations of banks’ policy of profits’ distribution in response to changes in the liquidity preference of the public.

Keywords: Liquidity preference; endogenous money; finance dominance (search for similar items in EconPapers)
JEL-codes: B26 B50 E12 E44 (search for similar items in EconPapers)
Date: 2022-06
New Economics Papers: this item is included in nep-fdg
Note: SITES Working Papers 10
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Related works:
Journal Article: Households’ Liquidity Preference, Banks’ Capitalization and the Macroeconomy: A Theoretical Investigation (2024)
Working Paper: Households’ liquidity preference, banks’ capitalization and the macroeconomy: a theoretical investigation (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:awm:wpaper:10

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