Search Results (2)

The endogenous money creation paradigm posits that banks generate money through lending, with deposits serving as a byproduct. This study investigates the mechanism driving the “credit–deposit paradox” during Poland’s high-interest-rate environment, introducing innovative methodological approaches to quantify systemic monetary impairment. Using comprehensive monthly data from 2006 to 2024, we employ a mixed-methods framework featuring: (1) Bayesian vector autoregression with Minnesota priors to test dynamic interdependencies; (2) a novel money shortage indicator (MSI) that operationalizes credit–deposit decoupling through three theoretically grounded components; (3) Markov regime-switching analysis to identify persistent monetary stress regimes. Key findings reveal a structural decoupling between deposit growth and credit creation, with robust evidence that exogenous money inflows accumulate as idle deposits rather than stimulating lending. The economy experienced significant periods of money shortage conditions, with the most severe impairment occurring during recent high-stress periods. The analysis confirms the dominance of cost-push inflation from energy and food prices, while monetary factors played a limited role. High interest rates amplified credit demand suppression, creating conditions consistent with endogenous money creation disruption. Methodologically, this study enables three key advances: (1) systematic measurement of monetary transmission breakdowns; (2) empirical identification of structural factors disrupting credit–deposit dynamics; (3) temporal characterization of monetary stress persistence patterns. These contributions advance the endogenous money framework by demonstrating its vulnerability to behavioral, policy-induced, and exogenous disruptions during high-stress periods. Practically, the MSI offers policymakers a real-time diagnostic tool for identifying monetary transmission breakdowns, while the regime analysis informs targeted countercyclical measures. Specific policy recommendations include developing sector-specific liquidity facilities, coordinating fiscal transfers with monetary policy to prevent deposit–loan decoupling, and prioritizing supply-side interventions during cost-push inflation episodes. By integrating post-Keynesian theory with empirical evidence from Poland, this study contributes to understanding money creation mechanisms in highly stressed economic environments. Full article

‘Financial crisis’ is sometimes regarded as synonymous with ‘economic crisis’, but this is an oversimplification and risks missing the feedback loops between the financial and real economies. In this paper, the role of money is revisited in the context of distinguishing the real economy from the financial economy. A theoretical framework is developed to explain how endogenous (bank credit) and central bank exogenous (quantitative easing, QE) money creation feed into the real and financial economies. It looks at how the velocity of monetary circulation varies between the two economies and across asset types within the financial economy. Monetary transmission mechanisms are set into a framework that helps explain how QE stimulus risks combining asset price bubbles with poor growth in the real economy. The real economy transmission mechanism of ‘helicopter money’ is given context, enabling an assessment of the efficacy of both the QE and helicopter money policy routes. Finally, we present a new type of monetary transmission, ‘Smart Helicopter Money’, to deliver monetary stimulus to innovators, SMEs and high-growth firms via both complementary currencies and a modified form of QE in order to achieve proportionally greater impact on the real economy. Full article