Beginning with the development of credit-money theory in the twentieth century, Paul Dalziel derives a model that explains how interest rates are used by authorities to maintain price stability, and suggests how the current policy framework can be improved to promote growth. This model is able to analyse the optimal debt decisions of firms, the liquidity preference of households, the equilibrium interest rate and equilibrium growth of an economy. It also illustrates how inflationary pressure is created when optimal funding decisions taken by firms lead to more deposits being created through bank loans than households are willing to hold, The central bank can respond by raising interest rates, which reduces the demand for bank loans and so reduces the quantity of deposits. This analysis suggests a number of ways in which policymakers can promote the economy's highest possible sustainable growth rate without sacrificing price stability.
Money, Credit and Price Stability is innovative new work that will prove to be essential reading for not only advanced students and academics with an interest in Keynesian economics, but also for professionals concerned with monetary theory and policy.
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Taylor & Francis
January 03, 2001
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