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Structural liquidity: The money-industry nexus

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  • Cardinale, Ivano
  • Scazzieri, Roberto

Abstract

This paper addresses the relationship between liquidity and production activity. It argues that this relationship becomes fully evident only if one considers intermediate levels of aggregation, and in particular stages of production within each industrial sector and their interdependence across sectors. To illustrate this, the paper introduces the concept of structural liquidity, which denotes material funds that are endogenously formed within the productive system before one considers the provision of liquidity by means of money. Structural liquidity is analyzed by combining (i) the representation of the productive system as an arrangement of fabrication stages sequentially related in time; and (ii) the representation of the productive system as a set of interdependent industrial sectors. The analysis identifies the structural liquidity problem as the need to satisfy both a viability condition (deriving from sectoral interdependencies) and a full employment condition (deriving from the sequencing of fabrication stages). The analysis highlights previously unexplored trade-offs, which have wide-ranging implications for monetary and liquidity policy.

Suggested Citation

  • Cardinale, Ivano & Scazzieri, Roberto, 2016. "Structural liquidity: The money-industry nexus," Structural Change and Economic Dynamics, Elsevier, vol. 39(C), pages 46-53.
    • Handle: RePEc:eee:streco:v:39:y:2016:i:c:p:46-53
    DOI: 10.1016/j.strueco.2016.09.001
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    References listed on IDEAS

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    Cited by:

    1. Cardinale, Ivano, 2018. "A bridge over troubled water: A Structural Political Economy of vertical integration," Structural Change and Economic Dynamics, Elsevier, vol. 46(C), pages 172-179.
    2. Brancaccio, Emiliano & Califano, Andrea & Lopreite, Milena & Moneta, Alessio, 2020. "Nonperforming loans and competing rules of monetary policy: A statistical identification approach," Structural Change and Economic Dynamics, Elsevier, vol. 53(C), pages 127-136.
    3. Cardinale, Ivano & Scazzieri, Roberto, 2019. "Explaining structural change: actions and transformations," Structural Change and Economic Dynamics, Elsevier, vol. 51(C), pages 393-404.

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    More about this item

    Keywords

    Money and industry; Liquidity; Credit demand and supply; Time-structure of production; Industrial interdependencies; Structural economic dynamics; Levels of aggregation;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • B20 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - General

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