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Article
Peer-Review Record

Computational Analysis of the Properties of Post-Keynesian Endogenous Money Systems

J. Risk Financial Manag. 2021, 14(7), 335; https://doi.org/10.3390/jrfm14070335
by Stef Kuypers 1,*, Thomas Goorden 1 and Bruno Delepierre 1,2
Reviewer 1: Anonymous
Reviewer 2: Anonymous
Reviewer 3: Anonymous
Reviewer 4: Anonymous
J. Risk Financial Manag. 2021, 14(7), 335; https://doi.org/10.3390/jrfm14070335
Submission received: 28 February 2021 / Revised: 2 July 2021 / Accepted: 9 July 2021 / Published: 20 July 2021
(This article belongs to the Special Issue Monetary Plurality and Crisis)

Round 1

Reviewer 1 Report

Please see the attached file.

Comments for author File: Comments.pdf

Author Response

The paper has gone through a thorough rewrite. A more solid motivation for the research has been given, based on the literature study which has been performed.

The entire simulation has been rewritten (in Julia) and simplified and code snippets are included in the paper.

The model now comes with a balance sheet analysis and recursive functions describing the model.

The discussion part includes extensive reflection on the economic implications of the findings.

Reviewer 2 Report

The paper is proposing a computer simulation to analyze the debt based money systems.

The methodology is well presented and the conclusions are well supported by the results

In my opinion the introduction part and literature review can be improved to provide better background to the paper. Also, a comparisons with the results of similar attempts  could improve the overall contribution.

Very interesting work.

Author Response

The paper has been through a thorough rewrite. The entire simulation has been rewritten (in Julia) and the introduction and motivation has been grounded more firmly in existing research. The paper now also includes code snippets which allow to reproduce the simulations.

The discussion and conclusion parts now reflect on the consequences for the debate around steady state economies based on debt based, interest bearing monetary systems.

Reviewer 3 Report

Review of the Manuscripts  ID -jrfm-1063160 Computational Analysis of the Dynamics of Debt Based, Inter-est Bearing Money Systems” for the Journal of Risk and Financial Management.

General Comments

From my point of view, it is a very interesting topic and simultaneously it seems that to the best of my knowledge is the first empirical research analyzing the Dynamics of Debt Based, Inter-est Bearing Money Systems. The paper consists of four sections: Introduction, Materials and Methods Results and Conclusions.

However, I find some recommendations:

  1. The abstract must contain the main purpose of the paper, the research method used in the research and the main contributions.
  2. It would be very useful to add in the "Introduction" section the purpose, objectives and hypothesis of the research.
  3. We consider that the introduction should specify the novelty of the paper compared to other papers published in this area.
  4. Also, we consider the literature is not enough and that is why, we recommend the authors to refer to other recent works indexed in Web of Science, Scopus, Emerald, Cambrige, and of course MDPI Journals. We suggest that the authors cite papers published in MDPI journals and Web of Science Journals, such as:

a.Batrancea, I., Rathnaswamy Malar, M., Batrancea, L., Nichita, A.,  Gaban, L., Fatacean, G, Tulai, H., Bircea, I., Rus, M.I. (2020) A Panel Data Analysis on Sustainable Economic Growth in India, Brazil, and Romania, Journal of Risk and Financial Management, 13(8), 170, https://doi.org/10.3390/jrfm13080170.

b.Batrancea, L., Rathnaswamy Malar, M., Batrancea, I., Nichita, A., Rus, M.I, Tulai, H., Fatacean, G, Masca, E.S., Morar, I. D. (2020) Adjusted Net Savings of CEE and Baltic Nations in the Context of Sustainable Economic Growth: A Panel Data Analysis. J. Risk Financial Manag. 202013, 234.

c.Batrancea I, Batrancea L, Maran Rathnaswamy M, Tulai H, Fatacean G, Rus M-I. Greening the Financial System in USA, Canada and Brazil: A Panel Data Analysis. Mathematics. 2020; 8(12):2217. https://doi.org/10.3390/math8122217

 

  1. The authors must to reword the following paragraphs: 3.5.1.1. (10%. initial debt ratio -doesn’t work); 3.5.1.2; 3.5.1.3;3.5.2.1.; 3.5.2.2; 3.5.2.3; 3.5.2.4; 3.5.2.5; 3.5.2.6; 3.5.4.1; 3.5.4.2; 3.5.6.1; 3.5.6.2; 3.5.6.3; 3.6.

 

  1. The authors must explain the software used, the models on which they built the scenarios and last but not least the database used.
  2. The conclusions must be extended and the list of references must be extended, as only 7 cited papers are insufficient for a paper to be published in the prestigious journal risk and financial management.
  3. I propose to the authors the following structure of the paper: Introduction; Literature review; methods and results; discussions and conclusions.In conclusion, the article should be thoroughly rebuilt (changes in structure recommended above). It should also be enhanced with a review of the literature adequate to the subject and a broader interpretation and commentary of the research results.

Author Response

The paper has been through a thorough rewrite. The entire simulation has been rewritten (in Julia) and the introduction and motivation has been grounded more firmly in existing research. A stronger motivation has been added, namely that nothing could be found where a model of the monetary system was implemented separately from economic parameters which do not directly lead to money creation or destruction.

The paper now also includes code snippets which allow to reproduce the simulations.

Recursive balance sheet analysis and recursive functions have been added to better explain the workings of the model.

The discussion and conclusion parts now reflect on the consequences for the debate around steady state economies based on debt based, interest bearing monetary systems.

Reviewer 4 Report

The article tackles a potentially interesting problem of interrelations between interest rates, money supply (created ex nihilo by commercial banks), debt ratio of the economy and "required" lending rate (to satisfy the stability of the system, understood as the lack of exponential growth in debt ratio). 

The presented results contain a number of simulations focused on the required lending rate and debt ratio as functions of initial parameters: initial debt, (targeted) growth rate of the money stock, interest rate, and profit retention. Additionally, a parameter which seems to play some role in the dynamics, but is not sufficiently discussed, is the selected initial maturity of the debt (20 years). This implies some system bifurcations around the 240th month of the simulation. 

Although the topic is potentially interesting, the article suffers from a number of important limitations:

  1. The relationships and dynamics of the variables should be presented as equations or thoroughly explained. This does not happen in the text of the article, in the appendix nor is clearly presented in the python archive.
  2. The literature cited is extremely scarce, serves mainly as the underpinning of the selected theory (which is ok), but should also clearly indicate the hypotheses which are tested by the means of simulations. Additionally, the Author should explicitly state which is (are) the paper(s) which utilise the most similar approach (methodology). 
  3. Some assumptions are questionable (at least): e.g., "Part of this money stock is created as equity" (lines 127-8). Equity is by no means money, it does not enter any of the monetary aggregates. It would be also problematic to treat it even as a counterpart of the money supply. This issue should be explained.
  4. It is not clear why some values of parameters were adopted, 1% of reserve requirement could be justified (but an explicit reference to ECB, 2021 should be given), but 10% of money stock growth is already highly questionable, especially in the long run (ECB would probably opt for ca. 4.5% - to be discussed). Similarly for the interest rates.
  5. At the end of the Conclusions the Author lists a number of important economic questions somehow related to the presented research results. In my opinion, some of these questions should rather serve as a motivation of the research, but then much more attention should be paid to the way how the argument is developed and what are its practical implications.
  6. It should be discussed what exactly are the determinants of the asymptotic (long-run, steady-state) debt ratio, as it is clearly determined by the model parameters. Such findings might be also compared to public debt dynamics and its steady-state values (see, e.g.,  Escolano, J. (2010). A Practical Guide to Public Debt Dynamics, Fiscal Sustainability, and Cyclical Adjustment of Budgetary Aggregates. IMF Technical Notes and Manuals. https://www.imf.org/external/pubs/ft/tnm/2010/tnm1002.pdf) 7. The python code in the provided github archive is very hard to read, a number of libraries are probably not really necessary, the archive should have a clear readme file.

Minor points include:

  1. In all the graphs' titles "System" is present. This is clearly redundant. Also, figures should be numbered;  
  2. l. 57: repeated the empirical in 2014 (probably word "exercise" missing);
  3. "active" instalments (line 175) could be probably replaced by a more standard "outstanding debt";
  4. Introductory statement of the section 3.5.4 (lines 224-5) seems a bit awkward to me; 
  5. In the appendix Central Bank and its behavior (parameters) is presented, but is hardly discussed in the text: only reserve requirement is, but any interests applied on reserves and excessive reserves are not
  6. References are missing some important details: Bundesbank missing the month of the monthly report as well as other details such as page numbers; ECB, 2015 is not really a scientific reference at all; ECB 2021 misses the title; McLeay and Radia missing details (Journal/ Edition house?).

All in all, in spite of some clear merits, the text should be significantly improved before being considered for publication in JRFM.  

Author Response

The paper has gone through a thorough rewrite. All sections have been updated and fleshed out. Although SFC models have been found, and are referred to, none could be found which focus only on the monetary system dynamics.

Balance sheet analysis and recursive functions have been added in order to better explain the model and the relationships between the parameters.

The simulations has been simplified and completely rewritten (in Julia). Code snippets are now included in the paper.

All plots have been reformatted and have been provided with proper headers and labels.

The discussion and conclusions have also been through a thorough rewrite.

Round 2

Reviewer 3 Report

Review of the Manuscripts  ID -jrfm-1063160 Computational Analysis of the Dynamics of Debt Based, Inter-est Bearing Money Systems” for the Journal of Risk and Financial Management.

General Comments

From my point of view, it is a very interesting topic and simultaneously it seems that to the best of my knowledge is the first empirical research analyzing the Dynamics of Debt Based, Inter-est Bearing Money Systems. The paper consists of four sections: Introduction, Materials and Methods, Results and Conclusions.

However, I find some recommendations:

  1. Since the authors make the connection between economic growth and banking developments, they must also refer to papers indexed in Web of Science, Scopus, Emerald, Cambrige, and of course MDPI Journals in which economic growth has been analyzed in terms of bank factors such as:

Batrancea I, Batrancea L, Maran Rathnaswamy M, Tulai H, Fatacean G, Rus M-I. Greening the Financial System in USA, Canada and Brazil: A Panel Data Analysis. Mathematics. 2020; 8(12):2217. https://doi.org/10.3390/math8122217

  1. The conclusions must be extended and the list of references must be extended, as only 17 cited papers are insufficient for a paper to be published in the prestigious Journal of Risk and Financial Management.

In conclusion, the paper can be published after these major revisions. It should also be enhanced with a review of the literature adequate to the subject and a broader interpretation and commentary of the research results.

Author Response

Thank you for your feedback.

The introduction has updated with some minor changes and added references.

 The discussion section about the Steady State Economy has been updated.

A new discussion section about Green Economy has been added.

The conclusion has been rewritten.

Overall, corrections to the English language have been applied and references have been added.

Reviewer 4 Report

Thank you for revising the paper, it has been significantly improved. I have no further remarks.

Author Response

Thank you.

Round 3

Reviewer 3 Report

Dear authors

Thanks  for taking into account the observations and recommendations of the reviewer. 

The paper can be published without further modification in this form in the prestigious Journal of Risk and Financial Management.

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