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Credit mechanics: a precursor to the current money supply debate

Decker, Frank and Goodhart, C. A. E. (2018) Credit mechanics: a precursor to the current money supply debate. CEPR Discussion Paper (13233). Centre for Economic Policy Research, London, UK.

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Abstract

This paper assesses the theory of credit mechanics within the context of the current money supply debate. Credit mechanics and related approaches were developed by a group of German monetary economists during the 1920s-1960s. Credit mechanics overcomes a one-sided, bank-centric view of money creation, which is often encountered in monetary theory. We show that the money supply is influenced by the interplay of loan creation and repayment rates; the relative share of credit volume neutral debtor-to-debtor and creditor-to-creditor payments; the availability of loan security; and the behavior of non-banks and non-borrowing bank creditors . With the standard textbook models of money creation now discredited, we argue that a more general approach to money supply theory involving credit mechanics needs to be established.

Item Type: Monograph (Discussion Paper)
Additional Information: © 2018 CEPR
Divisions: Financial Markets Group
Subjects: H Social Sciences > HB Economic Theory
JEL classification: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E40 - General
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E41 - Demand for Money
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E50 - General
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E51 - Money Supply; Credit; Money Multipliers
Date Deposited: 01 Feb 2019 12:27
Last Modified: 02 Oct 2019 23:25
URI: http://eprints.lse.ac.uk/id/eprint/100017

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