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Macroeconomics without the LM: A Post-Keynesian Perspective

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dc.contributor.authorPalley, Thomas
dc.contributor.departmentUniversity of Massachusetts Amherst
dc.date2023-09-22T21:05:32.000
dc.date.accessioned2024-04-26T19:59:37Z
dc.date.available2024-04-26T19:59:37Z
dc.date.issued2008-01-01
dc.descriptionWorking Paper 179
dc.description.abstractRomer (2000) provides an alternative model to the AS/AD and IS/LM models that abandons the LM schedule by having the short-term interest rate set by the central bank. His framework acknowledges the critical role of the central bank in determining short-term interest rates, which moves mainstream macroeconomics closer to Post Keynesian monetary theory. The current paper presents a Post Keynesian construction of macroeconomics without an LM schedule. Rather than describing the financial sector in terms of an exogenously determined interest rate set by the central bank, the model unpacks financial markets by fully specifying a banking sector. The key analytic feature of the Post Keynesian approach is to replace the money market with the loan market. That makes transparent the macroeconomic significance of the loan market and bank behavior, and generates an endogenous money supply driven by bank lending. If banks become more optimistic over the cycle and lower their interest rate mark-up, that increases the likelihood of instability.
dc.identifier.doihttps://doi.org/10.7275/1284545
dc.identifier.urihttps://hdl.handle.net/20.500.14394/39972
dc.relation.urlhttps://scholarworks.umass.edu/cgi/viewcontent.cgi?article=1150&context=peri_workingpapers&unstamped=1
dc.source.issue179
dc.source.statuspublished
dc.subjectbank lending
dc.subjectcredit
dc.subjectendogenous money
dc.subjectloan market
dc.subjectEconomics
dc.titleMacroeconomics without the LM: A Post-Keynesian Perspective
dc.typearticle
dc.typearticle
digcom.contributor.authorPalley, Thomas
digcom.identifierperi_workingpapers/175
digcom.identifier.contextkey1284545
digcom.identifier.submissionpathperi_workingpapers/175
dspace.entity.typePublication
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