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Money Creation, Employment and Economic Stability: The Monetary Theory of Unemployment and Inflation

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  • Alain Parguez

Abstract

This paper by building on the general theory of the monetary circuit, proves that money-as a pure bank credit liability-exists to overcome constraints on required expenditures by firms, household and mainly the State. From this perspective the paper derives the employment function in the modern monetary economy. Thereby it is explained that full employment policy is both always possible and required. It is proven that this conclusion holds in a perfectly open economy. Ultimately it is explained that there is no trade-off between full employment and sustainable price stability. Key words: Money, Banks, Employment, Fiscal policy, Phillips curve, Inflation, Exchange rates, Deficit, Consumption, Investment.JEL: E24, E31, E62.

Suggested Citation

  • Alain Parguez, 2008. "Money Creation, Employment and Economic Stability: The Monetary Theory of Unemployment and Inflation," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 55(1), pages 39-67.
    • Handle: RePEc:voj:journl:v:55:y:2008:i:1:p:39-67:id:238
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    More about this item

    Keywords

    Money; Banks; Employement; Fiscal policy; Philips curve; Inflation; Exchahnge rates; Deficit; COnsumption; Investment;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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