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Transcending the new macroeconomic orthodoxy in the Eurozone: a Post-Keynesian view

Author

Listed:
  • Kristijan Kotarski

    (Faculty of Political Science, University of Zagreb, Zagreb, Croatia.)

  • Milan Deskar-Škrbiæ

    (Erste&Steiermarkische bank d.d., Zagreb, Croatia)

Abstract

The main aim of this paper is to empirically test the endogenous money hypothesis for the Eurozone. Based on data on loans to private sector, deposits, monetary aggregates, prices and GDP we use three empirical approaches to test the hypothesis: (i) moving correlation; (ii) Granger causality tests and (iii) original framework for the analysis based on the structural VAR model. The empirical results confirm our main hypothesis on the endogeneity of money in the Eurozone as they show that the commonly accepted neoclassical relations between monetary variables, inflation and economic activity are reversed in case of Eurozone and that the direction of influence goes from loans to deposits and from real sector of the economy towards the monetary sector. The basic conclusion from carried out research is that ECB should implement measures directly aimed at stimulation of domestic demand (monetary-supported tax cut).

Suggested Citation

  • Kristijan Kotarski & Milan Deskar-Škrbiæ, 2016. "Transcending the new macroeconomic orthodoxy in the Eurozone: a Post-Keynesian view," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 34(2), pages 419-441.
    • Handle: RePEc:rfe:zbefri:v:34:y:2016:i:2:p:419-441
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    macroeconomic orthodoxy; eurozone; post-Keynesian approach; endogenous money; ECB;
    All these keywords.

    JEL classification:

    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary; Modern Monetary Theory;
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F50 - International Economics - - International Relations, National Security, and International Political Economy - - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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