Beyond the static money multiplier: in search of a dynamic theory of money

Berardi, Michele (2007): Beyond the static money multiplier: in search of a dynamic theory of money. Published in: Artificial Markets Modeling , Vol. 599, (2007)

Abstract

In this paper, we analyze the process of money creation in a credit economy. We start from the consideration that the traditional money multiplier is a poor description of this process and present an alternative and dynamic approach that takes into account the heterogeneity of agents in the economy and their interactions. We show that this heterogeneity can account for the instability of the multiplier and that it can make the system path-dependent. By using concepts and techniques borrowed from network theory and statistical mechanics, we then try to shed some light on the actual process by which money is endogenously created in an economy.

• Item Type: MPRA Paper
• Language: English
• Keywords: Money; Money multiplier; Network theory; Statistical mechanics.
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E51 - Money Supply ; Credit ; Money Multipliers; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E40 - General; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E41 - Demand for Money

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