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PKE Theoretical Aspects of Money and Finance

In: Money, Pricing, Distribution and Economic Integration

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  • Philip Arestis

    (University of East London)

Abstract

PKE monetary and financial theory has essentially developed around the theme of the endogeneity of money, which is seen as depending minimally on three types of behaviour. These are the behaviour of the central bank, the lending behaviour of the commercial banks, and the borrowing behaviour of the non-bank private sector. Under a fixed exchange rate regime we should also include the overseas sector. As regards domestic sources of endogeneity, the standard argument in PKE is that the central bank, as lender of last resort, has no realistic alternative but to satisfy the needs of trade at the discount rate that it fixes (see for example, Kaldor, 1980; Moore, 1988). Commercial banks then provide credit at the discount rate fixed by the central bank plus a mark-up. The demand for bank lending is interest inelastic. This is the standard argument in some, if not in most, PKE monetary and financial theory.

Suggested Citation

  • Philip Arestis, 1997. "PKE Theoretical Aspects of Money and Finance," Palgrave Macmillan Books, in: Money, Pricing, Distribution and Economic Integration, chapter 3, pages 55-73, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-37448-5_4
    DOI: 10.1057/9780230374485_4
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    Cited by:

    1. Rahimi , Azadeh, 2019. "The Endogenous or Exogenous Nature of Money Supply: Case of Iran," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 14(1), pages 27-40, January.

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