Preprint Article Version 1 Preserved in Portico This version is not peer-reviewed

Computational Analysis of the Properties of Post-Keynesian Endogenous Money Systems

Version 1 : Received: 15 June 2021 / Approved: 15 June 2021 / Online: 15 June 2021 (15:44:37 CEST)
Version 2 : Received: 2 July 2021 / Approved: 2 July 2021 / Online: 2 July 2021 (13:51:03 CEST)

How to cite: Kuypers, S.; Goorden, T.; Delepierre, B. Computational Analysis of the Properties of Post-Keynesian Endogenous Money Systems. Preprints 2021, 2021060415 (doi: 10.20944/preprints202106.0415.v1). Kuypers, S.; Goorden, T.; Delepierre, B. Computational Analysis of the Properties of Post-Keynesian Endogenous Money Systems. Preprints 2021, 2021060415 (doi: 10.20944/preprints202106.0415.v1).

Abstract

“Money has always been something of an embarrassment to economic theory. Everyone agrees that it isimportant; indeed, much of macroeconomic policy discussion makes no sense without reference to money.Yet, for the most part theory fails to provide a good account for it.”(Banerjee and Maskin, 1996, p. 955)The debate about whether or not a growth imperative exists in debt based, interest bearing mone-tary systems has not yet been settled. It is the goal of this paper to introduce a new perspective inthis discussion.For that purpose an SFC computational model is constructed which simulates a post KeynesianEndogenous Money system without including economic parameters such as production, wages,consumption and savings. A case is made that isolating the monetary system allows for betteranalysis of the inherent properties of such a system.Loan demands, which are assumed to happen, are the driving force of the model. Simulationscan be run in 2 modes, each based on a different assumption. Either the growth rate of the moneystock is assumed to be constant or the loan rate, expressed as a percentage of the money stock, isconsidered to be constant.Simualtions with varying parameters are run in order to determine the conditions under whichthe model converges to stability, which is defined as converging to a bounded debt rate.The analysis shows that stability of the model is dependent on net bank profit ratios, expressedrelative to their debt assets, remaining below the growth rate of the money stock. Based on thesefindings it is argued that the question about the existence of a growth imperative in debt based,interest bearing monetary systems needs to be reframed. The question becomes whether a steadystate economy can support such a system without destabilizing it.It is concluded that there are indications that this might not be the case. However, for a definiteanswer more research is necessary. Real world observable data should be analysed through thelens of the presented model to bring more clarity.

Supplementary and Associated Material

Subject Areas

Economics; SFC; Growth imperative; Steady state economy; Money stock; Money supply

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