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The money supply in macroeconomics

Howells, Peter


Peter Howells


Miguel Angel Galindo-Martin

Cristina Nardi Spiller


The notion that the quantity of money in an economy might be endogenously determined has a long history. Even so, it has never been part of mainstream economic thinking which has remained dominated by the view that the policymaker somehow controls the stock of money and that interest rates are market-determined. However, the need to design and operate a monetary policy that works for modern economies as they are currently constructed, has led to the emergence of the so-called ‘new consensus macroeconomics’ in which it is recognised that the policymaker sets a short-term interest rate and the quantities of money and credit are demand-determined.
This chapter looks at the way in which this ‘new consensus’ is (at last) forcing a recognition, in the teaching of money, that the money supply is endogenously determined. It also shows how we can take this further by adding a banking sector to a model of the real economy in which the money supply is endogenously determined.

Publication Date Jan 1, 2010
Peer Reviewed Peer Reviewed
Pages 161-184
Series Title Economic Issues, Problems and Perspectives
Book Title Issues in Economic Thought
ISBN 9781608761739
APA6 Citation Howells, P. (2010). The money supply in macroeconomics. In M. A. Galindo-Martin, & C. N. Spiller (Eds.), Issues in Economic Thought, 161-184. Nova Science Publishers Inc
Keywords money supply, endogeneity, quanity theory, IS/LM
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Additional Information Additional Information : Reprinted from: Issues in Economic Thought, The money supply in macroeconomics, pp.161-184, copyright 2010, Peter Howells with permission from Nova Science Publishers, Inc.


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