Missaglia, Marco and Botta, Alberto ORCID: 0000-0001-9464-8251 (2022) Households’ liquidity preference, banks’ capitalization and the macroeconomy: a theoretical investigation. Review of Political Economy. ISSN 0953-8259 (Print), 1465-3982 (Online) (doi:https://doi.org/10.1080/09538259.2022.2100218)

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Abstract

In this paper we build a simple model on the role of households’ liquidity preference in the determination of economic performance. We postulate, for the sake of the argument, a purely “horizontalist” environment, i.e., a world of endogenous money where the central bank is able to fix the interest rate(s) at a level of its own willing. We show that even in such a framework liquidity preference, while obviously not constituting anymore a theory for the determination of the interest rate, continues to be a key element for the determination of both the level and evolution over time of aggregate income and capital accumulation. In our model, this happens because of the working of a mechanism so far unexplored in the literature, i.e., the endogenous variations of banks’ policy of profits’ distribution in response to changes in the liquidity preference of the public.

Item Type:	Article
Uncontrolled Keywords:	liquidity preference; endogenous money; finance dominance
Subjects:	H Social Sciences > HB Economic Theory
Faculty / School / Research Centre / Research Group:	Faculty of Business Faculty of Business > Department of International Business & Economics Faculty of Business > Institute of Political Economy, Governance, Finance and Accountability (IPEGFA) Faculty of Business > Institute of Political Economy, Governance, Finance and Accountability (IPEGFA) > Greenwich Political Economy Research Centre (GPERC)
Last Modified:	10 Feb 2024 01:38
URI:	http://gala.gre.ac.uk/id/eprint/36807

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