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

The debate about whether or not a growth imperative exists in debt-based, interest-bearing monetary systems has not yet been settled. It is the goal of this paper to introduce a new perspective in this discussion. For that purpose, an SFC computational model is constructed that simulates a post-Keynesian endogenous money system without including economic parameters such as production, wages, consumption and savings. The case is made that isolating the monetary system allows for better analysis of the inherent properties of such a system. Loan demands, which are assumed to happen, are the driving force of the model. Simulations can be run in two modes, each based on a different assumption. Either the growth rate of the money stock is assumed to be constant or the loan ratio, expressed as a percentage of the money stock, is assumed to be constant. Simulations with varying parameters were run in order to determine the conditions under which the model converges to stability, which is defined as converging to a bounded debt ratio. The analysis showed that the stability of the model is dependent on net bank profit ratios, expressed relative to their debt assets, remaining below the growth rate of the money stock. Based on these findings, it is argued that the question about the existence of a growth imperative in debt-based, interest-bearing monetary systems needs to be reframed. The question becomes whether a steady-state economy can realistically support such a system without destabilising it. In order to answer this question, the real-world behaviour of economic actors must be included in the model. It was concluded that there are indications that it might not be feasible for a steady-state economy to support a stable debt-based, interest-bearing monetary system without strong interventions. However, more research is necessary for a definite answer. Real-world observable data should be analysed through the lens of the presented model to bring more clarity. Full article