Money and banking in a realistic macro-model

Howells, Peter

Abstract

In this paper, in section 2, we review the latest suggestions for dispensing with the LM curve, focusing primarily on the (quite similar) Bofinger, Mayer and Wollmershäuser (2005) and Carlin and Soskice (2005 and 2006) approaches. The novelty, however, lies in section 3 with the further development of these models in such a way that incorporates the behaviour of the banking sector. In section 4 we ‘test’ the legitimacy of this development by showing how the effects of a shock emerging from the macro part of the model can be traced through the banking sector where it produces perfectly sensible outcomes. The same section also provides a test of the model (reversing direction) by showing how the effect of a recent disturbance originating in the banking sector, the alarm over sub-prime lending, can be incorporated in the banking sector of the model and followed through to the macro part where again they show sensible results.

• Publication Date: Jan 1, 2009
• Deposit Date: Dec 14, 2010
• Publicly Available Date: Nov 6, 2016
• Peer Reviewed: Peer Reviewed
• Pages: 169-187
• Book Title: Macroeconomic Theory and Macroeconomic Pedagogy
• ISBN: 9780230202030
• Keywords: IS/LM, IS/PC/MR, money, banking
• Public URL: https://uwe-repository.worktribe.com/output/1003221
• Publisher URL: http://www.palgrave.com/products/title.aspx?PID=287122
• Additional Information: Additional Information : Peter Howells, Money and Banking in a realistic macro-model, 2009, Palgrave Macmillan. Reproduced with permission of Palgrave Macmillan. This extract is taken from the author's original manuscript and has not been edited. The definitive version of this piece may be found in Macroeconomic Theory and Macroeconomic Pedagogy edited by Giuseppe Fontana and Mark Setterfield which can be purchased from www.palgrave.com
• Contract Date: Nov 6, 2016