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THIS IS THE WORKING PAPER VERSION. FOR THE PUBLISHED VERSION, GO HERE https://www.researchgate.net/publication/256043652_An_Endogenous_Money_Perspective_on_the_Post-Crisis_Monetary_Policy_Debate
A number of debates are taking place regarding the appropriate response of monetary policy both to the crisis and the Great Recession that followed, parti...
Contexts in source publication
Context 1
... more complete accounting might reduce the likelihood of this happening in the future. First, Table 1 illustrates a simple, representative bank balance sheet. ...Context 2
... way of comparison, Tables 10 and 11 illustrate QE carried out as purchases of government securities from bank dealers and non-bank dealers, respectively (the Fed's QE operations are exclusively with primary dealers). Unlike helicopter drops, QE does not raise the equity or net worth of the non-government sector. ...Context 3
... policy operations via government deficits, on the other hand, do increase the net worth or equity of the non-government sector much as is occurring in Tables 8 and 9. A bond sale by the Treasury is simply the reverse of a bond purchase by the central bank from the nongovernment sector's perspective, and since (from Tables 10 and 11) the latter does not add to net worth or equity, the bond sale obviously does not subtract from it. But the deficit itself is an increase in the non-government sector's income directly, either through spending that adds to the income of recipients or reduced taxes that increase the after-tax income of taxpayers. ...Similar publications
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Citations
... PKs also argue that unconventional monetary policies such as QE are suboptimal tools for curing recessions (Fullwiler, 2013). While it is accepted that asset purchase programmes have been successful in depressing long-term interest rates, PKE has long argued that low rates during a depression are unlikely to lead to an increase in borrowing and expenditure (Sawyer, 2009). ...
The paper proposes a post-Keynesian analysis of the Eurozone crisis and contrasts interpretations inspired by New Keynesian, New Classical, and Marxist theories. We analyze the role different paradigms attribute to current account imbalances, fiscal policy and monetary policy. Remarkably, opposing views on the relative importance of cost and demand developments in explaining current account imbalances can be found in both heterodox and orthodox economics. Regarding the assessment of fiscal and monetary policy there is a clearer polarization, with heterodox analysis regarding austerity as unhelpful and large parts of orthodox economics endorsing it. We conclude that there is a weak mapping between post-Keynesian, New Classical, New Keynesian and Marxist theories and different economic policy strategies for the Euro area, which we label Keynesian New Deal, European Orthodoxy, Moderate Reform and Progressive Exit respectively.
... Each individual bank does not pass on deposits or reserves into its lending but creates loans out of nothing. Thus bank lending is not determined by pre-existing amount of deposits or reserves, but depends on the profitability of this loan and the banking regulations to which the bank is subject (Goodhart, 2010). ...
... Many advanced economies do not have reserve requirement, such as the UK, Canada and Australia. Regardless, for countries that do retain this policy, banks can always make loans first and fulfill the reserve requirement later by borrowing from the interbank market or directly from the central bank (Fullwiler, 2012). On the other hand, prudential regulations became much more rigid after recent financial crises. ...
The fractional reserve theory of money creation only considers the reserve requirement but ignores prudential regulations. We study the impacts of four prudential regulations under the Basel III framework on the commercial bank's ability to create money. Using a balance sheet approach, we formulate the corresponding maximum money multiplier under each regulation. We find that in addition to the concerned minimum required ratio, the banking system's liquidity and default risk portfolios also play key roles in determining the maximum money supply.
... This is perfectly compatible with the post-Keynesian analysis of endogenous money. Since banks grant loans to credit-worthy borrowers and search for reserves later, the fact that banks are now flush with reserves does not mean that they will make more loans and create more deposits in the process (Fullwiler 2013). In the UK case, because the Bank of England was purchasing financial assets from non-banking agents, these agents used the proceeds of their sales to deleverage and reduce their debt, thus destroying the bank deposits that had been created when they had sold their assets to the Bank of England. ...
The purpose of the present paper is to examine the main changes that have occurred or that need to occur in monetary economics, and to do this in light of what Keynes told us 80 years ago in his General Theory, or even more than 85 years ago when he wrote the Treatise on Money. Inflation targeting and central bank independence are re-examined, as are the standard views of the money multiplier and of the fractional-reserve system. Unconventional monetary policies, although previously suggested by Keynes, appear to be a disguised return to Monetarism and the actual impact of quantitative easing must be understood in light of a theory of endogenous money with monetary implementation occurring within a framework where the target interest rate is set at the floor of the corridor.
... (Eichengreen, 2015, S. 352) 15 Aus post-keynesianischer Sicht ist davon auszugehen, dass raschere und entschiedenere Zinssenkungen die Eurozonenwirtschaft unterstützt hätten (z.B. Horn, 2015); ein früheres Schnüren von QE-Maßnahmen durch die EZB hätte jedoch nur in eingeschränktem Ausmaß positive Effekte auf Wachstum und Inflation gehabt(Fullwiler, 2013;Lavoie, 2016). Die EZB hätte durch eine Ausweitung der Geldbasis, die durch den Ankauf von Staatsanleihen und anderen Wertpapieren bewirkt wird, unter den nach der Finanzkrise vorherrschenden Bedingungen des laufenden Schuldenabbaus im Privatsektor und schwacher Kreditnachfrage nur beschränkt zu einer Ausweitung der privaten Kredite und der Geldmenge beitragen können(Koo, 2015). ...
Diese Studie befasst sich mit dem Auseinanderlaufen der gesamtwirtschaftlichen Entwicklung nach der
globalen Finanzkrise im Vergleich von Eurozone, USA und Großbritannien. Die Eurozone erholte sich
seit 2010 deutlich schleppender als die US-amerikanische und die britische Wirtschaft. Die Rolle von
Unterschieden im wirtschaftspolitischen Kurs der drei Wirtschaftsräume wird in zwei Dimensionen
analysiert; zum einen anhand eines Überblicks zur Geldpolitik der EZB nach dem Ausbruch der globalen
Finanzkrise im Vergleich mit jener der Fed und der Bank of England; zum anderen durch eine
Beschäftigung mit der theoretischen und empirischen Fachliteratur zum Einfluss von Fiskalpolitik auf die
wirtschaftliche Entwicklung. Das zentrale Ergebnis ist, dass der restriktivere Mix aus Geld- und
Fiskalpolitik in der Eurozone die im Vergleich zu den USA und Großbritannien schwächere
wirtschaftliche Entwicklung zu erklären vermag. Vor dem Hintergrund der makroökonomischen und
institutionellen Rahmenbedingungen in der Eurozone hatte die Austeritätspolitik ab den Jahren
2010/2011 ausgeprägt negative Effekte auf Wachstum und Beschäftigung, was die Eurozonenwirtschaft
im Zusammenspiel mit der über weite Strecken zögerlichen Geldpolitik der EZB in eine Spirale aus
hoher Arbeitslosigkeit, niedriger Inflation und steigender realer Schuldenlast trieb. Die USA und
Großbritannien verfolgten eine expansivere Mischung aus Geld- und Fiskalpolitik als die Eurozone; und
dies führte seit der Finanzkrise zu einer rascheren und umfassenderen Erholung von
Wirtschaftswachstum und Beschäftigung.
Wirtschaftspolitisch ist in der Eurozone insbesondere ein fiskalpolitischer Kurswechsel sowie eine
Reform des EU-Fiskalregelwerks erforderlich; denn die bestehenden institutionellen Regeln und deren
restriktive Auslegung haben in den letzten Jahren eine prozyklische, krisenverstärkende Fiskalpolitik
befördert. Die EZB ist mit ihrer seit Anfang 2015 betriebenen Geldpolitik des „Quantitative Easing“ auf
sich alleine gestellt nicht in der Lage, die anhaltend hohe Arbeitslosigkeit und die zu niedrige Inflation
wirkungsvoll zu bekämpfen. Eine koordinierte Ausweitung öffentlicher Investitionen, bei der
Leistungsbilanzüberschussländer wie Deutschland und Österreich die Vorreiterrolle einnehmen, würde
nicht nur kurzfristig Wachstum und Beschäftigung ankurbeln, sondern auch das angebotsseitige
Wachstumspotential der Wirtschaft anheben, den öffentlichen Schuldenabbau mittel- und langfristig
durch höhere (zukünftige) Steuerreinnahmen erleichtern, den Deflationskräften entgegenwirken und den
Abbau von Leistungsbilanzungleichgewichten vorantreiben.
The European Central Bank (ECB) engaged in an expanded asset purchase programme (APP) from 2014 to 2018 to help achieve their primary objective of price stability. Total assets purchased over this period was over €2.5 trillion and new net purchases ended in December 2018. This paper identifies whether the ECB’s APP in Ireland operated through the portfolio rebalancing channel, the signalling channel or the lending channel. It presents a quantitative descriptive analysis of some key Irish data sets in the 2014–2018 period and uses time-series visualisation and trend analysis to identify trends and correlations. There are a number of preliminary findings. First, much downward pressure on sovereign debt yields and spreads had occurred before the APP began due to previous accommodative monetary policy and the signalling channel. Second, the corporate-sector purchase programme (CSPP) did impact on targeted bonds and may have had spill overs to non-targeted bonds. Third, the APP did not lead to much increased lending to the SME sector. Fourth, while households did engage in traditional portfolio rebalancing, Irish banks did not and were perhaps more motivated to meet their capital requirements and manage their level of reserves. This is a first step towards understanding the transmission channels of ECB policy in Ireland and more work needs to be done to detangle the transmission of the most recent APP from other factors and consider these findings in the context of theoretical models. Such work is important to help inform policy makers on enhancing the transmission mechanism to the Irish economy of the recently launched new ECB asset purchase programme from November 2019.
The aim of this paper is to investigate the cause behind rising Target2 imbalances since early 2015, coinciding with the implementation of a quantitative easing program by the ECB.Two facts have captured our attention. Firstly, the official explanation of rising Target2 imbalances, offered by the ECB, isnot convincingbecause it does not fit the empirical evidenceavailable for Italy and Spain. Further, our alternative interpretation reveals that through quantitative easing, the ECB has helped to cleanupbanks’ balance sheets and has indirectly funded government spending. Secondly, those who spoke out against the risks of rising Target2 imbalances in 2011-12, now remain silent on this issue, despite the fact that some of the presumed risks during the first wave of rising imbalances still hold. We interpret this silence as an implicit acceptancethat the risks put forward in 2011-12 are offset by reform fatigue and anti-euro sentiments in the Euro Zone.
Auf den Finanzmärkten wird Geld verschoben, investiert, ausgeliehen, verloren und gewonnen. Den politischen Entstehungs- und sozialen Persistenzbedingungen dieser Zahlungsströme widmen sich zahlreiche ergiebige Studien der neuen Wirtschafts- und Finanzsoziologie. Aus geldsoziologischer Perspektive wird dabei allerdings häufig nicht hinreichend explizit gewürdigt, dass der Finanzsektor nicht nur mit immer größeren Volumen an Finanzmitteln operieren kann, weil er seinen Anteil an der gesamten Wirtschaftsleistung ausbaut,1 sondern weil es insgesamt immer mehr Geld gibt.
The European Central Bank�s balance sheet has expanded notably, without banks granting more
credit, and the overnight interest rate has stayed close to the deposit facility level for long periods of
time since the onset of the financial crisis. This appears to go against the logic implicit in the post-
Keynesian Horizontalist approach to monetary macroeconomics, which links reserves to credit and
holds that a central bank accommodates the demand for reserves in order to control the overnight
interest rate. In this article, we analyze the monetary policy implemented by the ECB since the third
quarter of 2008, with a view to studying its implications for monetary theory, concluding that this
approach can still explain much of what has happened in the Euro Zone in the last troubled years,
despite paradoxically, there being excess reserves and simultaneously accepting that reserves are
demand led, and that the ECB has lent them at the official rate while the overnight interest rate has
been close to the deposit facility rate. Further, this analysis reveals that mainstream monetary
theory has not been very useful, because neither the link between reserves and loans nor the relation
between reserves and inflation have worked. This leads us to believe that some transmission
channels of the monetary policy implemented by the ECB since late 2014, which can be deemed
unconventional, will not perform well.
