Ulrich van Suntum

Capital, Interest, and Money Ulrich van Suntum

Why is there an interest rate? What does the so-called "natural" interest rate depend on, and could it even get negative because of a "savings glut"? What is the impact of monetary policy on both the interest rate and the price level? Is the super-expansive monetary course of both the FED and the ECB good or bad for the economy? Can monetary unions really work, and what about "Vollgeld," Helicopter money, and parallel currencies? These are key issues in contemporary economics, but they are rarely dealt with in common textbooks. The present book gives clear answers to these and many other questions, by using just one model, and with minimal mathematical effort. Starting with the case of a simple barter economy, where nothing else is produced than corn, the model is modified step by step by integrating a public sector, different sorts of money, a central bank, a commercial banking sector, and foreign trade. The model is fully microfounded as well as stock-flow-consistent, and yet analytically solvable at each stage by using only a few equations. By relegating all proofs to the appendix, only key formulae appear in the main text, all being supported by intuitive explanation as well. The book is suitable for both advanced students of economics and experienced economists, who like to see various macroeconomic issues being tackled in just one comprehensive, but nevertheless simple model. Although this is a textbook, with many charts and only few prerequisits, it also contributes to economic theory by generating some surprising, hitherto unknown results. For example, it is shown that expansionary monetary policy can even generate deflation instead of inflation, if one takes the reaction of liquidity demand into account. Likewise, the effects of variations in the bank reserve rate are far from being obvious with an endogenized liquidity demand. Moreover, the so-called golden rule of accumulation turns out to be only silver at best, if one takes transition periods from one steady state to another into account. Hence, the present book provides also some fresh arguments for the current debate on these issues. An Excel file with all model variations which are in the book can be downloaded for free at https: //www.wiwi.uni-muenster.de/insiwo/de/news/96