Endogenous interest rate with accommodative money supply and liquidity preference

Abstract : The paper offers theoretical discussion and modelling showing that -in accordance to the post Keynesian approach to endogenous money- the credit-worthy demand for loans determines the supply of loans at the prevailing interest rate, while -in accordance with Keynes's liquidity preference theory- the rate of interest is endogenously determined as to equalize the demand and supply of liquidity-money in terms of stocks. As a consequence, the markup reflected in the spread between the central bank refinancing interest rate and the market interest rate is endogenously determined by the total demand and supply of liquidity-money. The paper also argues that, while the central bank effectively controls the base interest rate, additional conditions are required to control the liquidity-money market interest rate, owing to the conventional nature of the rate of interest Keynes pointed out.
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https://halshs.archives-ouvertes.fr/halshs-01231469
Contributor : Angel Asensio <>
Submitted on : Friday, March 8, 2019 - 8:07:15 PM
Last modification on : Thursday, March 14, 2019 - 1:12:56 AM

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  • HAL Id : halshs-01231469, version 2

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Angel Asensio. Endogenous interest rate with accommodative money supply and liquidity preference. 2019. ⟨halshs-01231469v2⟩

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