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Federal Reserve Bank of St. Louis
Working Papers
Reconciling Orthodox and Heterodox Views on Money and Banking
David Andolfatto
Abstract

A wide range of heterodox theories claim that banks are special because they create money in the act of lending. Put another way, banks can create the funding they need ex nihilo, whereas all other agencies must first acquire the funding they need from other parties. Mainstream economic theory largely agrees with this assessment, but questions its theoretical and empirical relevance, preferring to view banks as one of many potentially important actors in the financial market. In this paper, I develop a formal economic model in an attempt to make these ideas precise. The model lends some support to both views on banking.


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David Andolfatto, Reconciling Orthodox and Heterodox Views on Money and Banking, Federal Reserve Bank of St. Louis, Working Papers 2018-27, 09 Oct 2018.
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Keywords: Heterodox view; Money; Banking
DOI: 10.20955/wp.2018.027
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