The document discusses post-Keynesian views on money, credit, and finance. It outlines the historical development of monetary theories from the Currency School vs. Banking School debates in the 19th century to modern controversies between horizontalists and structuralists within post-Keynesianism. It also covers new central bank operating procedures that implement monetary policy through interest rate targeting rather than reserve or money supply targets.

1. Money, Credit and Finance

3. Part I

4. Post-Keynesian monetary sub-schools Post- Keynesian Monetary Economics Structuralists Horizontalists Accommodationists Circuit theory Paris and Naples Emissions theory Dijon Free University of Berlin School Chartalists UKCM school

5. Neoclassical monetary sub-schools Neoclassical monetary schools Monetarists IS/LM New Paradigm Keynesian (Stiglitz Greenwald) Wicksellian New Consensus

6. M i Horizontalists (New Consensus) Monetarists IS/LM Verticalists Structuralists (New Paradigm) M s M s M s A simplified overview of endogenous money

8. Main features in monetary economics Features PK school Neoclassical Money Has counterpart entries Falls from an helicopter Money is seen As a flow and as a stock A stock Money is tied to Production Exchange The supply of money is Endogenous Exogenous Main concern with Debts, credits Assets, money Causality Reversed: credits make deposits Reserves allow deposits Credit rationing due to Lack of confidence Asymetric information

9. Main features, interest rates Features PK School Neoclassical Interest rates Are distribution variables Arise from market laws Liquidity preference Determines the differential relative to base rate Determines the interest rate Base rates Are set by the central bank Are influenced by market forces The natural rate Takes multiple values or does not exist Is unique, based on thrift and productivity

10. Main features, macro implications Features PK School Neoclassical A restrictive monetary policy Has negative effects in short and long run Has negative effects only in the short run Schumpeter’s distinction Monetary analysis (monetized production economy) Real analysis (money neutrality, inessential veil) Macro causality Investment determines saving Saving determines investment Inflation The growth in money stock aggregates is caused by the growth in output and prices Price inflation is caused by an excess supply of money

13. Simplified neoclassical view Central bank balance sheet Assets Liabilities Foreign reserves Banknotes Domestic T-bills Reserves of commercial banks

14. Simplified PK view Central bank balance sheet Assets Liabilities Foreign reserves Banknotes Domestic T-bills Reserves of commercial banks Loans to domestic banks Government deposits (Central bank bills)

15. Part II PK monetary theory in historical perspective

27. Part III The Structuralist vs Horizontalist PK controversies

34. Loans Interest rate Notional demand Credit- worthy demand i 2 A N   i 1 Credit rationing when there is a reduction in bank confidence (Credit-worthy demand: demand with appropriate collateral: Cf. De Soto, and Heinsohn and Steiger) A’ 

37. Part IV New developments in monetary policy implementation by central banks

40. The Bank of Canada channel system Settlement balances Overnight rate 0 + (surplus) - (overdraft) Target rate TR Bank rate = TR+25pts Rate on positive balances = TR-25pts

42. Poole 1970 Interest rate Output A IS LM MT IT LM A = IT MT IS Investment is unstable: Use monetary targeting MT Less variability in output Demand for money is unstable: Use interest rate targeting No variability in output IT IT

51. Problems with no tunnel and a not so credible target: central bank needs to be very precise in its daily forecast of reserves demand (Whitesell 2003) Reserves Expected Fed funds rate Lending rate Deposit rate Demand for reserves S S’ Target Fed rate

53. The case of the ECB: reserve averaging with a tunnel/corridor Reserves Target rate Lending rate Deposit rate Demand for reserves S S’

55. Part V Open-economy monetary economics

58. Simplified PK view Central bank balance sheet Assets Liabilities Foreign reserves Banknotes Domestic T-bills Reserves of commercial banks Loans to domestic banks Government deposits (Central bank bills)

60. Part V The integration of PK monetary economics into PK macroeconomics