Alternative money theories: a G7 testing

Abstract

The aim of this paper is to present the ways different schools of economic thought approach the money supply process—that is, the money-income relationship as well as the money multiplier model. First, we briefly discuss the arguments among the different Post Keynesian schools of thought, on these two issues as well as the different orthodox views. Then, using econometric causality techniques, we search which theoretical approach "better fits the data" in the G7 economies. The results favor the idea that in most of the G7 economies—with the possible exceptions of France and Japan—the "road" of nonorthodox money generation process (with some peculiarities for each country) seems to be followed.

Keywords:

• cointegration
• money theories
• VARs