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Endogenous interest rate with accommodative money supply and liquidity preference

Abstract : The paper offers theoretical discussion and modelling showing that -in accordance to the post Keynesian approach to endogenous money- the credit-worthy demand for loans determines the supply of loans at the prevailing interest rate, while -in accordance with Keynes's liquidity preference theory- the rate of interest is endogenously determined as to equalize the demand and supply of liquidity-money in terms of stocks. As a consequence, the markup reflected in the spread between the central bank refinancing interest rate and the market interest rate is endogenously determined by the total demand and supply of liquidity-money. The paper also argues that, while the central bank effectively controls the base interest rate, additional conditions are required to control the liquidity-money market interest rate, owing to the conventional nature of the rate of interest Keynes pointed out.
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Contributor : Angel Asensio <>
Submitted on : Friday, November 20, 2015 - 12:37:48 PM
Last modification on : Tuesday, February 11, 2020 - 2:07:37 PM
Long-term archiving on: : Friday, April 28, 2017 - 8:37:23 PM


end mon & liq pref.pdf
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  • HAL Id : halshs-01231469, version 1



Angel Asensio. Endogenous interest rate with accommodative money supply and liquidity preference. 2015. ⟨halshs-01231469v1⟩



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