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COMPETING VIEWS OF THE MONEY SUPPLY PROCESS: THEORY AND EVIDENCE
Author(s) -
Palley Thomas I.
Publication year - 1994
Publication title -
metroeconomica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.256
H-Index - 29
eISSN - 1467-999X
pISSN - 0026-1386
DOI - 10.1111/j.1467-999x.1994.tb00013.x
Subject(s) - economics , process (computing) , neoclassical economics , money supply , quantity theory of money , keynesian economics , monetary policy , computer science , operating system
This paper examines three competing approaches to the determination of the money supply. The first approach is labelled the pure portfolio approach, and corresponds to the orthodox approach to the money supply. The second approach is labelled the pure loan demand approach, and corresponds to the Post Keynesian accommodationist view of endogenous money. The third approach is labelled the mixed portfolio‐loan demand approach, and corresponds to the Post Keynesian structuralist view of endogenous money. The critical theoretical difference between the latter two models is identified in terms of the importance of the private initiatives of banks in accommodating expansions of loan demand. The paper then provides Granger‐causality evidence on the three approaches, and concludes in favor of the mixed portfolio‐loan demand approach.