Structural liquidity: The money-industry nexus

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Cardinale, Ivano and Scazzieri, R. 2016. Structural liquidity: The money-industry nexus. Structural Change and Economic Dynamics, 39, pp. 46-53. ISSN 0954-349X [Article]

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Official URL: http://www.sciencedirect.com/science/article/pii/S...

Abstract or Description

This paper addresses the relationship between liquidity and production activity. It argues that this relationship becomes fully evident only if one considers intermediate levels of aggregation, and in particular stages of production within each industrial sector and their interdependence across sectors. To illustrate this, the paper introduces the concept of structural liquidity, which denotes material funds that are endogenously formed within the productive system before one considers the provision of liquidity by means of money. Structural liquidity is analyzed by combining (i) the representation of the productive system as an arrangement of fabrication stages sequentially related in time; and (ii) the representation of the productive system as a set of interdependent industrial sectors. The analysis identifies the structural liquidity problem as the need to satisfy both a viability condition (deriving from sectoral interdependencies) and a full employment condition (deriving from the sequencing of fabrication stages). The analysis highlights previously unexplored trade-offs, which have wide-ranging implications for monetary and liquidity policy.

Item Type:

Article

Identification Number (DOI):

https://doi.org/10.1016/j.strueco.2016.09.001

Keywords:

Money and industry, Liquidity, Credit demand and supply, Time-structure of production, Industrial interdependencies, Structural economic dynamics, Levels of aggregation

Departments, Centres and Research Units:

Institute of Management Studies
Institute of Management Studies > Structural Economic Analysis

Dates: