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Powers of the Central Bank in the context of the liquidity preference theory of J.M. Keynes

Vol. 24, Iss. 9, SEPTEMBER 2018

Received: 1 June 2018

Received in revised form: 15 June 2018

Accepted: 29 June 2018

Available online: 28 September 2018

Subject Heading: THEORY OF FINANCE

JEL Classification: F31, F41, L52

Pages: 2201–2213


Gogokhiya D.Sh. Institute of Economics of RAS, Moscow, Russian Federation

ORCID id: not available

Subject This article considers the powers of the Central Bank, their justification and the shortcomings of this justification.
Objectives The article aims to discuss the expansion of the powers of the Central Bank not as a lender only, but also as a borrower of last resort.
Methods For the study, I used the historical-logical and functional methods. These methods helped J.M. Keynes develop a macroeconomic theory of liquidity preference and refine the theory of interest and money demand. I also used the methods of comparative economic analysis to study the theoretical constructions of Keynes.
Results The article identifies the grounds that allow to differentiate the demand for money as a store of value and demand for money as a medium of payment for production resources and other capital assets. The article says that the liquidity preference theory by J.M. Keynes, as it is formulated in The General Theory of Employment, Interest and Money, Chapter 17, gives the basic guidelines for search of such bases and accordingly, ways of improvement of the modern monetary system as a central bank system with deposit fractional-reserve banking.
Conclusions and Relevance The analysis reveals specific features of supply and demand in the money market and the potential of the Central Bank to provide through a differentiated interest policy the unconditional safety of the value of monetary assets. The results obtained can be used for discussion and choice of monetary policy options.

Keywords: money supply, demand for money, Central Bank, liquidity, maintenance costs


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