Aggregate demand, endogenous money, and debt: a Keynesian critique of Keen and an alternative theoretical framework

Palley, Thomas I.

doi:10.4337/roke.2014.03.03

Cited by 5 publications

(3 citation statements)

References 7 publications

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“…The multiplier is calculated as the addition to aggregate nominal demand (dYt) resulting from an additional dollar change of credit (dΔDt). Palley (2014) defines the nominal credit expenditure multiplier vt as:…”

Section: Velocity Of Moneymentioning

confidence: 99%

“…The changes in the distribution of income affect aggregate demand and velocity, primarily because MPC depends on wealth or income. This way, the changes in the distribution of income alone, independently of new borrowing or debt repayment, may cause changes to aggregate income and velocity (Palley 2014). It is typically assumed in economic models that either a) debtors and creditors (savers) have different MPC or that b) MPC functionally depends on wealth or income.…”

Section: Wealth/income Distribution and Distribution Of Mpcmentioning

confidence: 99%

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Financial shocks and their effects on velocity of money in agent-based model

Bohacik

2022

Review of Economic Perspectives

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The interaction of debt and economic performance has been getting more attention over the last few years. However, models making provision for debt are still outnumbered by models completely ignoring it. This paper is the first one to analyze the relationship between household debt (in the form of bank loans) and economic performance (in terms of aggregate income) considering both the impact of wealth and income distribution, and the impact of the MPC distribution under various financial shocks. The outcomes of the model are velocities calculated as ratios of aggregate income to aggregate debt. The paper demonstrates how financial shocks affect the income velocity of money under different distributions of wealth/income and marginal propensity to consume across the population. For this purpose, an original agent-based simulation model with a limited loan supply was designed. Proposed model shocks are shocks to loan demand, loan supply, marginal propensity to consume, macro-prudential regulatory ratios, real estate capital gains, repayment ratios, shocks to the structure of loans provided and to the structure of real estate property transactions. It is shown that the more equal the distributions of wealth/income and of the marginal propensity to consume, the higher is the income velocity of money. From financial shocks, the marginal propensity to consume shock and the shock to the structure of new real estate property purchases have the largest impact on velocity. The shock to regulatory ratios has generally the lowest magnitude.

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Section: Velocity Of Moneymentioning

confidence: 99%

Section: Wealth/income Distribution and Distribution Of Mpcmentioning

confidence: 99%

Financial shocks and their effects on velocity of money in agent-based model

Bohacik

2022

Review of Economic Perspectives

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“…The columns of this journal have hosted a hot debate about aggregate effective demand and endogenous money, launched by a contribution from Keen (2014), with comments from Fiebiger (2014), Lavoie (2014), Palley (2014) and Reissl (2016), and a reply from Keen (2015). What is important for our purpose is that, despite their points of contention, all participants agree that endogenous money has an impact on aggregate demand: whereas Keen supports a kind of post-Keynesian monetarism (Palley 2014), others, for example, point to shifting purchasing power between agents with different propensity to spend. Different channels, but a common impact on aggregate demand.…”

Section: Endogenous Money Creation Vs Loanable Fundsmentioning

confidence: 99%

Debt and investment in the Keen model: a reappraisal of modelling Minsky

Nguyen-Huu

Pottier

2017

Review of Keynesian Economics

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We examine to what extent the Keen model (Keen 1995) is a faithful modelling of Minsky's financial instability hypothesis. We focus on debt, money, and debt-induced crisis. We propose a clear interpretation of the debt: households lend unconsumed income to firms to finance their investments, and money creation is not necessary. We offer a detailed description of the economic collapse and analyse its causes thanks to numerical experiments. The crisis is triggered by profits squeezed by wages and not by debt overhang. We test alternative assumptions on the investors' behaviour to show that behaviour at very low profits is fundamental. We conclude that the Keen crisis has few Minskyan flavours.

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Emergent Macroeconomics: Deriving Minsky’s Financial Instability Hypothesis Directly from Macroeconomic Definitions

Keen

2020

Review of Political Economy

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Aggregate demand, endogenous money, and debt: a Keynesian critique of Keen and an alternative theoretical framework

Cited by 5 publications

References 7 publications

Financial shocks and their effects on velocity of money in agent-based model

Financial shocks and their effects on velocity of money in agent-based model

Debt and investment in the Keen model: a reappraisal of modelling Minsky

Emergent Macroeconomics: Deriving Minsky’s Financial Instability Hypothesis Directly from Macroeconomic Definitions

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