Federal Reserve Bank of St. Louis
Reconciling Orthodox and Heterodox Views on Money and Banking
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.
Cite this item
David Andolfatto, Reconciling Orthodox and Heterodox Views on Money and Banking, Federal Reserve Bank of St. Louis, Working Papers 2018-27, 09 Oct 2018.
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
Keywords: Heterodox view; Money; Banking
This item with handle RePEc:fip:fedlwp:2018-027
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