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Keynesians, New Keynesians and the Loanable Funds Theory

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Money, Financial Institutions and Macroeconomics

Part of the book series: Recent Economic Thought Series ((RETH,volume 53))

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Abstract

Two of the major tenets of ‘New Keynesian Economies’ are (i) that capital market imperfections are due to information asymmetries, and (ii) that the supply of credit is endogenous, giving rise to the possibility of credit rationing.2 Points (i)-(ii) imply that economic activity is mainly affected not by the amount of money and the related interest rate but by the quantity constraint of credit (Stiglitz 1988: 320; Greenwald and Stiglitz: 1987). However, since ‘New Keynesian Economics’ aims to build up a general macroeconomic model based on non-traditional microeconomic foundations, it must integrate its theory of credit with a theory of money. In this last respect New Keynesians occasionally refer to the ‘flow approach’ of the loanable funds theory (for instance, Blinder and Stiglitz 1983: 297).

An earlier draft of this paper was presented at the Università Cattolica — Milan, the Université de Paris X — Nanterre, and the Université de Nice — LAPAPSES. I wish to thank the seminars participants as well as M. Bianchi, J. Cartelier, V. Chick, G. Chiodi, N. De Marchi, A. Graziani, and G. Harcourt, for their helpful comments and criticism of that paper. This final draft of this paper. This final draft has also benefited by the discussion at the Money Conference organized by York University. The financial support of MURST (grant 60%) is gratefully acknowledged.

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Authors
  1. Marcello Messori
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Editors and Affiliations

  1. York University, Canada

    Avi J. Cohen  & John Smithin  & 

  2. University of Hohenheim, Germany

    Harald Hagemann

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Messori, M. (1997). Keynesians, New Keynesians and the Loanable Funds Theory. In: Cohen, A.J., Hagemann, H., Smithin, J. (eds) Money, Financial Institutions and Macroeconomics. Recent Economic Thought Series, vol 53. Springer, Dordrecht. https://doi.org/10.1007/978-94-011-5362-1_3

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  • DOI: https://doi.org/10.1007/978-94-011-5362-1_3

  • Publisher Name: Springer, Dordrecht

  • Print ISBN: 978-94-010-6254-1

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