Possibilities of monetary regulation in post-keynesian economics

Post-Keynesian approach to the nature of money brings some strong conclusions for the monetary policy of a central bank. Money is created by provision of loans. Loans make deposits. Deposits make reserves, since central banks play the role of a lender of last resort. Banks thus may provide as much of credit, as they want and as is demanded. Money is credit-driven and demand-determined. Central bank has no control over the high-powered money and the money stock. The base interest rate is exogenous, set by the central bank. It does not affect the stock of money but it is fundamentally a distributive variable. Central bank should set its level consistently with the growth of productivity. To fight with inflation, central bank should use direct-credit-control facilities.

Keywords: central bank, post-Keynesianism, money endogeneity, supply of money and credit