Abstract
Money is the life-blood of any modern market-oriented economy. The level of money supply - the quantity and velocity of money circulated in such an economy would determine its health. The central issue in managing the economy is to understand how money supply is determined. The history of modern monetary economics actually has witnessed the emergence of two opposing views pertaining to the role of central bank in controlling the supply of money in an economy. A group of economists, known as monetarists, under the influence of Milton Friedman, contended that money supply in an economy is exogenously determined. Post Keynesian however holds the view that money supply is endogenously rather than exogenously determined. Examining the theory of endogenous money as well as empirical work, the present paper has found that money supply in several countries is endogenously determined.
Highlights
Post Keynesian Economics is the contemporary version of Keynesian school of economic thought
Providing a new dimension to the modern economic thought and policy, Post Keynesian Economics stresses the endogeneity of money supply, the importance of uncertainty and historical time, the importance of effective demand in reducing unemployment rate and a rejection of neoclassical general equilibrium models
In the literature of Post Keynesian economics, money supply endogeneity has been studied based on four hypotheses. These four ‘sub-school’ or branches of Post Keynesian economics are popularly known as Horizontalist, Structuralist, Liquidity Preference View and Circuit Theory of Money
Summary
Post Keynesian Economics is the contemporary version of Keynesian school of economic thought It is an extension of the idea of John Maynard Keynes. Providing a new dimension to the modern economic thought and policy, Post Keynesian Economics stresses the endogeneity of money supply, the importance of uncertainty and historical time, the importance of effective demand in reducing unemployment rate and a rejection of neoclassical general equilibrium models (see i.e., Vernengo & Rochon, 2001, p.77). Post Keynesian Economics was developed by a group of economist from Cambridge who attempted to extend Keynes economic ideas and philosophy around 1980s. These economists insisted that economic theory must deal with problems in an institutional, historical time setting where uncertainty regarding future events colours current economic decisions and actions.
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