Computational Analysis of the Properties of Post-Keynesian Endogenous Money Systems
- Bank sector:
- Supply money on demand through private loans, thereby increasing the money stock;
- Demand the payback of outstanding private loans on predefined intervals, thereby decreasing the money stock.
- Private sector:
- Initiate the money supply through private loan demands;
- Pay off outstanding private debts on predefined intervals.
2.1. Money Creation Through Loans
- Step 1: A loan demand is initiated by the private sector;
- Step 2: The bank sector issues the loan, resulting in the following changes to the bank’s and the private sector’s balance sheets:
|+ Private debt||+ Deposits|
|+ Deposits||+ Private debt|
2.2. Money Destruction Through Down Payments
|− Private debt (loan instalment)||− Deposits (loan instalment)|
|− Deposits (interest)|
|+ Equity (interest)|
|− Deposits (loan instalment)||− Private debt (loan instalment)|
|− Deposits (interest)||− Equity (interest)|
2.3. Bank Costs
|+ Deposits (bank costs)|
|− Equity (bank costs)|
|+ Deposits (bank costs)||+ Equity (bank costs)|
2.4. Profit Retention
3. Model Description
- Growth mode:
- g: growth rate of the money stock;
- Loan demand mode:
- : loan ratio expressed as a percentage of the current money stock;
- Both modes:
- C: number of cycles. Each cycle is interpreted as one year;
- The initial state of all balance sheets;
- Parameters for the bank sector:
- m: loan maturity;
- p: profit retention ratio on debt.
- t: cycle number;
- : money stock;
- : private debt held by the bank;
- = : debt ratio;
- : size of the loan demand;
- : instalment due.
4.1. Fixed Growth Rate
4.1.1. Mathematical Analysis
4.2. Fixed Loan Ratio
5.1.1. Fixed Growth Rate
5.1.2. Fixed Loan Ratio
5.2. Steady-State Economy
5.3. Green Economy
5.5. Model Limitations
5.5.1. Quantitative Easing
5.5.2. Government Spending
5.5.3. Banks Selling Debt at a Loss
|Private debt = 100,000||Deposits = 80,000|
|Equity = 20,000|
|Deposits = 80,000||Private debt to bank = 100,000|
|Equity = −20,000|
|Private debt = 80,000||Deposits = 65,000|
|Equity = 15,000|
|Deposits = 65,000||Private debt to bank = 80,000|
|Security = 20,000||Private debt to investor = 20,000|
|Equity = −15,000|
5.5.4. Loan Defaulting
Institutional Review Board Statement
Informed Consent Statement
Data Availability Statement
Conflicts of Interest
Appendix A. Source Code
Eurostat website: https://sdw.ecb.europa.eu (accessed on 13 June 2021).
Since cash is not used in the model, M2 is not exactly the same as M, but it is the closest real-world measurement to it.
https://www.degrowth.info/en/ (accessed on 13 July 2021).
https://degrowth.org (accessed on 13 July 2021).
UN Meeting Coverage. Only 11 Years Left to Prevent Irreversible Damage from Climate Change, Speakers Warn during General Assembly High-Level Meeting. https://www.un.org/press/en/2019/ga12131.doc.htm (accessed on 13 July 2021).
- Arnsperger, Christian, Jem Bendell, and Matthew Slater. 2021. Monetary Adaptation to Planetary Emergency: Addressing the Monetary Growth Imperative. Ambleside, UK: University of Cumbria, Available online: https://insight.cumbria.ac.uk/id/eprint/5993 (accessed on 13 July 2021).
- Banerjee, Abhijit V., and Eric S. Maskin. 1996. A Walrasian Theory of Money and Barter. The Quarterly Journal of Economics 111: 955–1005. [Google Scholar] [CrossRef][Green Version]
- Batrancea, Ioan, Larissa Batrancea, Malar Maran Rathnaswamy, Horia Tulai, Gheorghe Fatacean, and Mircea-Iosif Rus. 2020. Greening the Financial System in USA, Canada and Brazil: A Panel Data Analysis. Mathematics 8: 2217. [Google Scholar] [CrossRef]
- Bowen, Alex, and Cameron Hepburn. 2014. Green growth: An assessment. Oxford Review of Economic Policy 30: 407–22. [Google Scholar] [CrossRef]
- Bundesbank, Deutsche. 2017. The role of banks, nonbanks and the central bank in the money creation process. Monthly Report 69: 13–34. [Google Scholar]
- Cahen-Fourot, Louison, and Marc Lavoie. 2016. Ecological monetary economics: A post-Keynesian critique. Ecological Economics 126: 163–68. [Google Scholar] [CrossRef]
- Caiani, Alessandro, Antoine Godin, Eugenio Caverzasi, Mauro Gallegati, Stephen Kinsella, and Joseph E. Stiglitz. 2016. Agent based-stock flow consistent macroeconomics: Towards a benchmark model. Journal of Economic Dynamics and Control 69: 375–408. [Google Scholar] [CrossRef][Green Version]
- D’Alessandro, Simone, André Cieplinski, Tiziano Distefano, and Kristofer Dittmer. 2020. Feasible alternatives to green growth. Nature Sustainability 3: 329–35. [Google Scholar] [CrossRef]
- Dogaru, Lucreția. 2021. Green Economy and Green Growth—Opportunities for Sustainable Development. Paper presented at the 14th International Conference on Interdisciplinarity in Engineering—INTER-ENG 2020, Târgu Mureș, Romania, October 8–9. [Google Scholar]
- Farley, Joshua, Matthew Burke, Gary Flomenhoft, Brian Kelly, D. Forrest Murray, Stephen Posner, Matthew Putnam, Adam Scanlan, and Aaron Witham. 2013. Monetary and Fiscal Policies for a Finite Planet. Sustainability 5: 2802. [Google Scholar] [CrossRef][Green Version]
- Godley, Wynne, and Marc Lavoie. 2012. Monetary Economics. London: Palgrave Macmillan. [Google Scholar] [CrossRef]
- Godley, Wynne. 2004. Towards a Reconstruction of Macroeconomics Using a Stock Flow Consistent (SFC) Model. University of Cambridge: Available online: https://www.repository.cam.ac.uk/bitstream/handle/1810/225167/wp16.pdf;jsessionid=90B9B20A5C98CDBF38CA6F162D785CAE?sequence=1 (accessed on 13 July 2021).
- Gross, Mr Marco, and Christoph Siebenbrunner. 2019. Money Creation in Fiat and Digital Currency Systems. IMF Working Papers Volume 2019, Issue 285. Available online: https://www.elibrary.imf.org/view/journals/001/2019/285/001.2019.issue-285-en.xml (accessed on 13 July 2021).
- Hallegatte, Stéphane, Geoffrey Heal, Marianne Fay, and David Treguer. 2012. From Growth to Green Growth—A Framework (No. w17841). Cambridge: National Bureau of Economic Research. [Google Scholar] [CrossRef]
- Hepburn, Cameron, Alexander Pfeiffer, and Alexander Teytelboym. 2018. Green Growth—Oxford Handbooks. In The New Oxford Handbook of Economic Geography. Oxford: Oxford University Press, p. 27. [Google Scholar] [CrossRef]
- Hickel, Jason, and Giorgos Kallis. 2019. Is Green Growth Possible? New Political Economy 25: 469–86. [Google Scholar] [CrossRef]
- IPCC. 2018. Special Report—Global Warming of 1.5 °C. Available online: https://www.ipcc.ch/sr15/ (accessed on 13 July 2021).
- IPCC. 2019a. Special Report—Climate Change and Land. Available online: https://www.ipcc.ch/srccl/ (accessed on 13 July 2021).
- IPCC. 2019b. Special Report—The Ocean and Cryosphere in a Changing Climate. Available online: https://www.ipcc.ch/srocc/ (accessed on 13 July 2021).
- Jackson, Tim, and Peter A. Victor. 2015. Does credit create a ‘growth imperative’? A quasi-stationary economy with interest-bearing debt. Ecological Economics 120: 32–48. [Google Scholar] [CrossRef]
- Kelton, Stephanie. 2020. The Deficit Myth: Modern Monetary Theory and How to Build a Better Economy. London: John Murray. [Google Scholar]
- Kingsley, Kelly Mua. 2017. Green Financing. SSRN Electronic Journal. Available online: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2940765 (accessed on 13 July 2021).
- Kinsella, Stephen, and Terence O’Shea. 2011. Solution and Simulation of Large Stock Flow Consistent Monetary Production Models Via the Gauss Seidel Algorithm. SSRN Journal. Available online: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1729205 (accessed on 13 July 2021). [CrossRef]
- Koo, Richard C. 2013. Balance sheet recession as the ‘other half’ of macroeconomics. European Journal of Economics and Economic Policies 10: 136–57. [Google Scholar] [CrossRef]
- Laeven, Mr Luc, and Mr Fabian Valencia. 2018. Systemic Banking Crises Revisited. IMF Working Papers 18. Washington: IMF. [Google Scholar] [CrossRef]
- Larissa, Batrancea, Rathnaswamy Malar Maran, Batrancea Ioan, Nichita Anca, Rus Mircea-Iosif, Tulai Horia, Fatacean Gheorghe, Masca Ema Speranta, and Morar Ioan Dan. 2020. Adjusted Net Savings of CEE and Baltic Nations in the Context of Sustainable Economic Growth: A Panel Data Analysis. Journal of Risk and Financial Management 13: 234. [Google Scholar] [CrossRef]
- Lavoie, Marc, and Wynne Godley. 2002. Kaleckian Models of Growth in a Coherent Stock-Flow Monetary Framework: A Kaldorian View. Journal of Post Keynesian Economics 24: 277–311. Available online: http://www.levyinstitute.org/pubs/Lavoie%20Godley_2001-02.pdf (accessed on 13 July 2021). [CrossRef]
- Li, Zhi, Po-Hsuan Lin, Si-Yuan Kong, Dongwu Wang, and John Duffy. 2021. Conducting large, repeated, multi-game economic experiments using mobile platforms. PLoS ONE 16: e0250668. [Google Scholar] [CrossRef] [PubMed]
- Lietaer, Bernard, Christian Arnsperger, Sally Goerner, and Stefan Brunnhuber. 2012. Money—Sustainability: The Missing Link. Devon: Triarchy Press, Available online: https://www.researchgate.net/publication/271506661_Money_and_sustainability_the_missing_link_a_report_from_the_Club_of_Rome_-_EU_Chapter_to_Finance_Watch_and_the_World_Business_Academy (accessed on 13 July 2021).
- McLeay, Michael, Amar Radia, and Ryland Thomas. 2014. Money Creation in the Modern Economy. London: Bank of England, Available online: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf?la=en&hash=9A8788FD44A62D8BB927123544205CE476E01654 (accessed on 13 July 2021).
- Nayan, Sabri, Norsiah Kadir, Mat Saad Abdullah, and Mahyudin Ahmad. 2013. Post Keynesian Endogeneity of Money Supply: Panel Evidence. Procedia Economics and Finance 7: 48–54. [Google Scholar] [CrossRef][Green Version]
- Nikiforos, Michalis, and Gennaro Zezza. 2017. Stock-Flow Consistent Macroeconomic Models: A Survey. Annandale-On-Hudson: Levy Economics Institute, Available online: https://www.levyinstitute.org/pubs/wp_891.pdf (accessed on 13 July 2021).
- Nordhaus, William. 2015. Climate Clubs: Overcoming Free-riding in International Climate Policy. American Economic Review 105: 1339–70. [Google Scholar] [CrossRef][Green Version]
- OECD. 2011. Towards Green Growth. Available online: https://www.oecd.org/greengrowth/48012345.pdf (accessed on 13 July 2021).
- OECD. 2012. OECD Environmental Outlook to 2050: The Consequences of Inaction, Paris, Organization for Economic Cooperation and Development. Available online: https://www.oecd.org/g20/topics/energy-environment-green-growth/oecdenvironmentaloutlookto2050theconsequencesofinaction.htm (accessed on 13 July 2021).
- OECD. 2020. Beyond Growth: Towards a New Economic Approach, New Approaches to Economic Challenges. Paris: OECD. [Google Scholar] [CrossRef]
- Ozili, Peterson K. 2021. Digital Finance, Green Finance and Social Finance: Is There a Link? Available online: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3786881 (accessed on 13 July 2021).
- Parrique, Timothée, Barth Jonathan, Briens François, Kerschner Christian, Kraus-Polk Alejo, Kuokkanen Anna, and Spangenberg Joachim H. 2019. Decoupling Debunked: Evidence and Arguments Against Green Growth as a Sole Strategy for Sustainability. Brussels: European Environmental Bureau, Available online: https://eeb.org/library/decoupling-debunked/ (accessed on 13 July 2021).
- Ramsey, David M., and Jérôme Renault, eds. 2020. Advances in Dynamic Games: Games of Conflict, Evolutionary Games, Economic Games, and Games Involving Common Interest, Annals of the International Society of Dynamic Games. Cham: Springer International Publishing. [Google Scholar] [CrossRef]
- Richters, Oliver, and Andreas Siemoneit. 2017. Consistency and stability analysis of models of a monetary growth imperative. Ecological Economics 136: 114–25. [Google Scholar] [CrossRef][Green Version]
- Stone, Mark R., Kenji Fujita, and Ishi Kotaro. 2011. Should Unconventional Balance Sheet Policies Be Added to the Central Bank toolkit? a Review of the Experience so Far; IMF Working Papers 11. Washington: IMF. Available online: https://www.imf.org/external/pubs/ft/wp/2011/wp11145.pdf (accessed on 13 July 2021).
- Werner, Richard A. 2014. Can banks individually create money out of nothing?—The theories and the empirical evidence. International Review of Financial Analysis 36: 1–19. [Google Scholar] [CrossRef][Green Version]
- Werner, Richard A. 2016. A lost century in economics: Three theories of banking and the conclusive evidence. International Review of Financial Analysis 46: 361–79. [Google Scholar] [CrossRef][Green Version]
Publisher’s Note: MDPI stays neutral with regard to jurisdictional claims in published maps and institutional affiliations.
© 2021 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https://creativecommons.org/licenses/by/4.0/).
Share and Cite
Kuypers, S.; Goorden, T.; Delepierre, B. Computational Analysis of the Properties of Post-Keynesian Endogenous Money Systems. J. Risk Financial Manag. 2021, 14, 335. https://doi.org/10.3390/jrfm14070335
Kuypers S, Goorden T, Delepierre B. Computational Analysis of the Properties of Post-Keynesian Endogenous Money Systems. Journal of Risk and Financial Management. 2021; 14(7):335. https://doi.org/10.3390/jrfm14070335Chicago/Turabian Style
Kuypers, Stef, Thomas Goorden, and Bruno Delepierre. 2021. "Computational Analysis of the Properties of Post-Keynesian Endogenous Money Systems" Journal of Risk and Financial Management 14, no. 7: 335. https://doi.org/10.3390/jrfm14070335