In this paper we build a simple model on the role of liquidity preference in the determination of economic performance. We postulate, for the sake of the argument, a purely “horizontalist” environment, i.e., a world of endogenous money where the central bank is able to fix the interest rate(s) at a level of its own willing. We show that even in such a framework liquidity preference, while obviously not constituting anymore a theory for the determination of the interest rate, continues to be a key element for the determination of both the level and evolution over time of aggregate income and capital accumulation. In our model, this happens because of the working of a mechanism so far unexplored in the literature, i.e., the endogenous variations of banks’ policy of profits’ distribution in response to changes in the liquidity preference of the public.
Creation-Date: 2022-06 File-URL: https://www.sitesideas.org/wp-content/uploads/2022/06/Sites_wp10.pdf File-Format: Application/pdf Note: SITES Working Papers 10 Number: 10 Classification-JEL: B26, B50, E12, E44 Keywords: Liquidity preference, endogenous money, finance dominance Handle: RePEc:awm:wpaper:10