Modeling Money and Credit: The New Monetarist View

In this paper, we survey recent theoretical work on money and credit following the New Monetarist approach. We argue that a coherent macroeconomic model should show that both these institutions are essential, in the sense that they help achieve allocations that could not be attained without them. As...

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Bibliographic Details
Published in:The Manchester school 2019-09, Vol.87 (S1), p.29-44
Main Author: Mattesini, Fabrizio
Format: Article
Language:English
Subjects:
Alliances
Credit
Economic models
Macroeconomics
Money
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Summary:In this paper, we survey recent theoretical work on money and credit following the New Monetarist approach. We argue that a coherent macroeconomic model should show that both these institutions are essential, in the sense that they help achieve allocations that could not be attained without them. As recent literature shows, however, this is difficult to establish and requires being very explicit about the frictions that money and credit help overcome. The paper highlights the importance of microfoundations and provides a word of caution against using reduced form models in macroeconomics.
ISSN:1463-6786
1467-9957
DOI:10.1111/manc.12290