Behavioral Finance Lecture 09: Modeling Endogenous Money

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In this lec­ture I con­tin­ue the devel­op­ment of the QED mod­el of a pure cred­it econ­o­my began in the last lec­ture, includ­ing mod­el­ling pro­duc­tion and devel­op­ing a pric­ing equa­tion to pro­duce a com­bined mon­e­tary-phys­i­cal mod­el. (see NOTE below if you can’t see this video in your brows­er)

Pow­er­point Slides (QED Files Free down­load; Debt­Watch Mem­bers: Part 1 Part 2; CfE­SI mem­bers: Part 1 Part 2)

In the sec­ond half of the lec­ture, I use the mod­el devel­oped in the first half to show that mon­ey is not neu­tral in a cred­it-based economy–a high­er rate of mon­ey cre­ation results in a fall in unemployment–and also mod­el a cred­it crunch. I also mod­el two gov­ern­ment poli­cies to counter a crunch: giv­ing mon­ey to the banks (which Oba­ma did) and giv­ing it to the debtors (which the Aus­tralian gov­ern­ment did). Con­ven­tion­al mon­ey mul­ti­pli­er the­o­ry argues that the for­mer is more effec­tive; I show that the lat­ter is about three times bet­ter than the for­mer.

NOTE

It appears that I’ve been upload­ing these videos in HTML5 for­mat, which isn’t sup­port­ed on some browsers–specifically Inter­net Explor­er 6–8! For­tu­nate­ly there is a workaround for this: installing Google Chrome Frame (as a plu­g­in to IE I expect).