The market for money and the market for credit

Theory, evidence and implications for Dutch monetary policy

  • Pieter Korteweg
  • Peter D. Van Loo

Table of contents

  1. Front Matter
    Pages I-XIII
  2. Pieter Korteweg, Peter D. Van Loo
    Pages 1-5
  3. Pieter Korteweg, Peter D. Van Loo
    Pages 6-41
  4. Pieter Korteweg, Peter D. Van Loo
    Pages 72-74
  5. Back Matter
    Pages 75-105

About this book


In most Keynesian-type macroeconomic models the financial sector is modelled in terms of money demand, money supply and money market equilibrium. The market equations for private and government debt, i.e. credit, are implicit in these models by virtue of Walras' Law and need not be explicitly specified. Market equations for existing physical capital, or shares in capital, are absent from these models on the tacit assumption that physical capital cannot be traded and, consequently, has no market price. Money in these models is a substitute for private and government debt, not for current output, let alone for physical capital (or claims thereon). Models with these characteristics have three basic weaknesses. They narrow down the monetary transmission mechanism to a small subset of assets. Moreover, they produce downward-biased estimates of the degree of controllability of money in open economies if money and claims on physical capital are actually substitutes. Finally, these models are ill-suited to analyze adequately the effects of open market operations and of financing government budget deficits which change the stocks of money and debt.


Keynes economy macroeconomics monetary policy

Editors and affiliations

  • Pieter Korteweg
    • 1
  • Peter D. Van Loo
    • 1
  1. 1.Erasmus University Rotterdamthe Netherlands

Bibliographic information

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Finance, Business & Banking