A Model with both Inside and Outside Money

  • Wynne Godley
  • Marc Lavoie


The following chapter combines Model PC, which described an economy in which there was portfolio choice but only with government (or ‘outside’) money, with Model DIS in which there were inventories but only credit (or ‘inside’) money. We shall call the model to be developed the INSOUT Model, since it combines inside and outside money. In the process we shall describe the main ways in which the central bank exercises control over commercial banks. In addition, the description of commercial banks will go beyond the simple equality between loans and deposits, with which we were content in the previous chapters. In the present chapter, commercial banks will actually need to take decisions of their own.


Interest Rate Central Bank Balance Sheet Commercial Bank Treasury Bill 
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Copyright information

© Wynne Godley and Marc Lavoie 2012

Authors and Affiliations

  • Wynne Godley
    • 1
  • Marc Lavoie
    • 2
  1. 1.King’s CollegeCambridge UniversityCambridgeUK
  2. 2.Department of EconomicsUniversity of OttawaCanada

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